A preview of Flipside’s new dashboards compares 6 exchanges’ reported trading volumes to the amount of deposits and withdrawals made on-chain, in order to highlight suspicious activity.
Legend: 372 tokens, 10 chains and 6 exchanges.Each graph is a different exchange. Each dot is a different token’s average volume in USD over the last 30 days.
Hover over the graphs to see what token each dot represents.
The x-axis is on-chain deposits plus withdrawals (in USD) for each token on each exchange.
The y-axis is what the exchange reported for that token in USD.
Dark blue tokens have higher exchange trading volume than deposits and withdrawals, which is expected in an active market. Light blue tokens exhibit the opposite pattern, with more deposits and withdrawals than reported trading volume.
Centralized Exchanges can fake trading volumes.
There are two types of exchanges on which users can buy and sell cryptocurrencies: centralized exchanges (CEXes) and decentralized exchanges (DEXes).
While every DEX trade is recorded on the blockchain, centralized exchanges use their own private databases to track trading that happens within their exchange.
This means that users have to trust centralized exchanges when they self-report how much trading volume and liquidity they have available per token.
Not only is blind trust very off-brand for blockchain communities, but there have been issues in the past with exchanges faking their trading volumes – both to attract users, catch the eye of new potential listings, and gain greater visibility by climbing the ranks on public data aggregators like CoinMarketCap.
The good news – there is a way to identify suspicious behavior.
We can compare centralized exchanges’ reported trading volumes to the amount of deposits and withdrawals made on-chain.
We shouldn’t expect exchanges’ reported off-chain volumes to directly match on-chain activity. In fact, it’s typical to see more trading than deposits and withdrawals.
But a trustworthy exchange should show a strong correlation between on-chain activity and reported volumes. This means most points on the graph should follow a linear line above the 45° angle. Binance, Bittrex, HitBTC, Huobi and Kucoin all follow that trajectory.
HotBit reported nearly $100M in COMP trading volume, when only $10K have been deposited.
HotBit on the other hand, shows a low correlation between its reported volumes and what we can see happening on-chain. The way the dots are aligned horizontally also would mean that all of these tokens have the same off-chain volume, which suggests artificial reporting on their part.
COMP also stands out as an outlier on HotBit. The exchange reports having 10,000x the COMP volume that we can see being deposited on-chain. COMP’s ratio is closer to 1:1 on other exchanges. Considering the yield farming hype around COMP, it would make sense for HotBit to want to artificially bolster its COMP liquidity to attract users.
In line with our findings, Nomics’ Exchange Transparency Rating gives HotBit a D, due to the fact that the exchange has not been willing to provide any auditable history.