Ongoing Improvements to Combat Volume Inflation

Ongoing Improvements to Combat Volume Inflation

2 months ago

Originally published on May 13, 2020.

Ongoing Improvements to Combat Volume Inflation

Table of Contents

Hi CoinMarketCap community,

Over the past few weeks, we have been actively soliciting and reviewing feedback (such as through our #RoastCMC campaign). Based on the feedback since we launched our Liquidity Metric last year, and based on the recent feedback we’ve received, it is clear that we have to continue improving our measures to address volume inflation in an even more comprehensive way.

On that front, our team is continually researching and designing new metrics to empower our users with the tools to make informed decisions on which exchanges to trade on.

Rather than wait for the perfect solution, our team has decided to take an iterative approach. We will be rolling out new metrics and improvements across multiple phases. This way, we can monitor how well each iteration addresses our users’ concerns, and adapt more optimally for the next iteration.

For starters, here is an outline of our latest initiatives in this phase of iteration:

(Updated as of Jun 3, 2020, in reverse chronological order;)

[NEW UPDATE] Ranking algorithm of exchanges (coming Jun 4)

Following the last exchange ranking update on May 14, we will be implementing a new algorithm to replace the current default ranking by Web Traffic Factor. This new algorithm will be based on the exchanges’ spot market pair rankings and the respective spot market pair’s Confidence score (both recently rolled out on May 29). In other words, for an exchange to rank high, its market pairs will need to score well across a combination of Liquidity Scores, Volume and Web Traffic Factor. More information about the ranking methodology is available here.

Ranking algorithm of market pairs (rolled out on May 29)

Alongside the new “Confidence” indicator below, we will be changing how market pairs are being ranked on CoinMarketCap. Currently, the default ranking of market pairs is sorted by volumes. Moving forward, the default ranking will be sorted by a new algorithm that takes into consideration three main variables — namely Liquidity Score, Web Traffic Factor and volume. To rank high, the market pairs of exchanges will have to score well across all three aspects. See details in our methodology here. This will take effect on the market pairs tab across all the coin detail pages. We plan to apply a similar algorithm for the exchange ranking page soon and will update on the timeline for that change shortly.

Introduction of the “Confidence” indicator to flag suspicious volumes in market pairs of exchanges (rolled out on May 29):

Following the removal of “adjusted volume” mentioned below, we will roll out a new “Confidence” indicator for each market pair. This indicator will be based on a machine learning algorithm that takes all the data we ingest — Liquidity Score (recently rolled out), Web Traffic Factor (recently rolled out), order book depths, time and sales — to determine if the volumes reported by exchanges are inflated, and to what extent. With this indicator, we hope our users will become better-informed about where they would like to trade. See details in our methodology here.

Market pairs tab to show one version, instead of two versions (rolled out on May 22)

Currently, on each coin detail page, we provide two versions of market pairs ranking — one by reported volume and another by adjusted volume. We realized that many of our users misunderstood the term “adjusted volume.” The “adjusted volume” metric only excluded the volume of derivative pairs, pairs with no transaction fees, or pairs conducting transaction mining. However, some of our users misinterpreted “adjusted volume” as volumes adjusted to remove inflated volumes. To reduce this confusion, we will be removing the use of “adjusted volume” and simply use “volume,” which is essentially trading volume reported by each cryptocurrency exchange. In other words, there will be just one version of the market pairs tab and this will take effect across all the coin detail pages (e.g. Bitcoin, Ethereum, etc)
One page to rank exchanges, instead of multiple pages (rolled out on May 14, 2020)

Another common area of feedback was to improve the user experience, especially around scrolling or navigation. In this version of the exchange ranking page, instead of having multiple pages, we folded them into one single page. This page is now sorted by the new metric, Web Traffic Factor, by default, while preserving the other metrics (e.g. Liquidity Score, volumes, markets) in the subsequent columns — all within the same table, and with the charts and volume numbers you are already so fond of! If you prefer to sort the rankings by a specific metric, you can simply click on the respective column. This is part of our ongoing effort to make our information more user-friendly and easy-to-navigate.

Web Traffic Factor (rolled out on May 14, 2020)

In most cases, with crypto being a retail-driven market, for an exchange to have high volumes, it needs to have a large number of retail traders (i.e. buyers and sellers). Instead of asking exchanges to submit their user numbers, a good intermediate proxy will be web traffic. As such, we have designed the Web Traffic Factor in this iteration. It takes into account an extensive range of data points, including pageviews, unique visitor count, bounce rate, time-on-site, relative ranking and keyword searches on major search engines. More details about our methodology can be found here. We are aware that web traffic will not provide the full picture, as there are traders who trade using API keys, for instance. This metric is, as shared above, an intermediate step in this iterative process.

Improved Liquidity Score (rolled out on May 8, 2020)

As previously discussed in our letter to our users, we are focused on improving the Liquidity Metric to be more useful for our users. In this improved version, instead of a Metric, we have developed our Score, which helps our users find exchanges with the least slippage and prioritizes order sizes most relevant to our users (i.e. in the range of $100 – $10,000, rather than, say, 50 BTC). In essence, we distilled liquidity into a single, intuitive score of 0 – 1,000 for our users to easily compare exchanges and markets.

Keep the feedback coming as we roll out these improvements! In the mean time, we prepared a few FAQs that may address further questions that you may have.

Frequently Asked Questions (FAQs)

  • Will the Confidence indicator be shown on the latest exchange rankings page? The Confidence indicator is more directly relevant for individual market pairs. In the version of exchange ranking algorithm to be rolled out on June 4, we will be using the Confidence indicator data directly as an input. Simply put, we algorithmically rank exchanges by their market pair ranking and market pair Confidence.
  • Can these new metrics be easily gamed or manipulated by errant exchanges?We incorporate numerous variables in each algorithm so that it cannot be easily exploited. In the case of the improved Liquidity Score, we track various order sizes over a large range of order quantities from $100 to $200,000 instead of a single order size. This prevents errant crypto exchanges from achieving a high liquidity score by simply putting enough liquidity at a defined spread to achieve the score that they wanted.Likewise for our Web Traffic Factor, it hinges not only on page views or visitor count. Instead, it incorporates more behavioral data points like bounce rate and time-on-site, which are important for distinguishing between real traffic and bot traffic. We also take into consideration relative ranking and keyword searches that indicate organic traffic than just looking at overall or direct traffic.
  • How often do you plan to update or upgrade your metrics?We are constantly monitoring the performance of every new metric that we roll out, watching for erratic outcomes and soliciting feedback from our community of users and partners. Based on the feedback we receive, we will roll out updates as frequently as we can in response. As you can see from our plan above, you can safely assume that there will be constant, iterative updates!

Will there be an overall metric that incorporates all the aspects (e.g. web traffic, volume, liquidity, markets etc)?

That is the plan, to simplify our metrics for new users who want to get the information at a glance. Currently, we provide options for different metrics so that our users can make their own informed decisions, depending on what they consider most important, and will continue to make that information available in the future. We are working on the UX/UI designs to make it easier to filter and sort for the attributes that you care about — it will be rolled out throughout this iterative process.

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