In traditional markets, exchanges with high volume equate to high liquidity. However, in crypto markets, exchanges with high volume does not necessarily equate to high liquidity. This is because many of the unregulated exchanges engage in wash trading and other manipulative behaviors to inflate their trading volume.
As one of the leading crypto asset data aggregators, CoinGecko is committed to doing what’s necessary to empower users with information to help make better-informed decisions. CoinGecko is fully aware that the market demands transparency and it is committed to improving this.
To combat fake exchange volume data, CoinGecko has developed rating algorithm called “Trust Score.” Ever since its inception in May 2019, it has successfully revamped all rankings of its own and subsequently led the upgrade industry-wide to start measuring by liquidity rather than reported numbers.
On CoinGecko, trading pairs and exchanges are no longer ranked as they are reported, but rather ranked more holistically based on various related metrics and it packaged it all as Trust Score to make it actionable at one glance.
Trust Score measures many facets of what an actively trading cryptocurrency or cryptocurrency exchange should have – namely liquidity, trading activity, scale, technical expertise and more. In 2019, CG rolled out Trust Score in two separate releases:
- Trust Score 1 (May 2019) – ranks trading pairs based on web traffic, liquidity & trading activity related metrics.
- Trust Score 2 (Sep 2019) – ranks exchanges based on web traffic, liquidity, scale & API coverage.
Breaking it down
“What is Trust Score?” is something CoinGecko gets a lot, so it has decided to write this article that focuses on explaining it without any technical details. This article will help to easily understand what Trust Score is.
As mentioned previously, Trust Score measures trading pairs and crypto exchanges, and here’s a breakdown of what they take into account for each:
|Measurement/Metric||Trading Pairs||Crypto Exchange|
|Reported trading volume||✓||✓|
|Reported orderbook data (depth & spread)||✓||✓|
|Web traffic statistics by SimilarWeb||✓||✓|
|Overall trading activity||✓||✓|
|Exchange’s scale of operations||✕||✓|
|Exchange’s API technical coverage||✕||✓|
CoinGecko splits the next sections between trading pairs & crypto exchanges to help users visualize what’s changed since Trust Score. Let’s get started!
Trading Pair Ranking
Trading pairs refer to the sets of trading combinations that can be done through a crypto exchange for a given cryptocurrency.
Prior to having Trust Score, trading pairs were ranked purely based on reported 24h volume, and that made it prone to manipulation as it was easy to over-report, and difficult to verify. Here’s an example of what the highest ranked trading pairs looked like back in the days:
Ethereum Trading Pairs (May 2019)
Using Trust Score, CoinGecko now ranks trading pairs using a combination of reported volume, order book depth, order book spread, an exchange’s overall web traffic quality, as well as trading activity. This makes for a more comprehensive ranking that better reflects the overall liquidity a trading pair has, and arguably much more difficult to manipulate.
Here’s how trading pairs for Ethereum looks like after Trust Score was implemented – overall liquidity became the yardstick, rather than trading volume alone:
Ethereum Trading pairs (Feb 2020)
Crypto Exchange Ranking
Crypto exchanges, similar to trading pairs, were also ranked based on their reported volumes. It worked in the earlier days but eventually became a meaningless number as they exchange race heated up and many sought ways to make themselves appear as the “top” exchange.
Through Trust Score, CoinGecko once again refreshed the standards of crypto exchange ranking to rank them by various metrics, which can be generally classified into three different categories:
- Liquidity/Web Traffic Quality – Reported volume, order book depth, order book spread, trading activity, as well as overall web traffic quality.
- Scale of Operations – Measures an exchange’s overall trading volume, order book depth, order book spread and activity relative to the rest of the industry?
- API technical coverage – Measures an exchange’s capability in terms of API availability & coverage
Through this, CoinGecko has managed to completely change how exchanges are ranked on its site. Here’s an example of how it has changed on CoinGecko’s Exchange page:
Will there be more changes to Trust Score?
In short, yes. CoinGecko will be constantly revising, improving and upgrading Trust Score as it learns lessons through implementation and from the feedback of their community along the way. In the near future, CoinGecko is also looking to incorporate more dimensions of measurement to make it more robust. Some of them are:
- Trade history analysis
- API quality analysis
- Cybersecurity analysis
- Hot & Cold wallet analysis
- Social Media analysis
- Exchange support turnover time
- User Reviews
- Licensing & Regulations
CoinMarketCap has always provided all users with the most accurate and relevant information to select exchanges and tokens to invest and trade in. They continuously strive to research, design and provide new and interesting metrics to make users’ lives easier in navigating the cryptocurrency space. Their new Web Traffic Factor represents one of the initiatives. And we are also excited to share this information with you.
Exchanges used to be ranked by their reported volumes. However, volume inflation is a problem that plagues the cryptocurrency space. CoinMarketCap went back to the drawing board and reviewed what important data they could collect for a more accurate representation of crypto exchange ranking.
In the absence of wash-trading, volumes remain a good indicator of the health of an exchange. The “anatomy” of volumes can be broken down into two large drivers — traders and liquidity. In general terms, within a retail-driven crypto trading market, it is difficult to have high volumes without (i) a large number of retail traders and (ii) liquid markets. CoinMarketCap has already comprehensively addressed the second driver with the proprietary Liquidity Score. They shall now address the first driver — the number of traders.
While it would be counterproductive to ask exchanges for the number of traders on their site — those that have actively inflated volumes would simply inflate their user count — CoinMarketCap found that a good substitute for user count would be web traffic. Thus, they designed a score showcasing exchanges’ web traffic, making it easier for the users to compare exchanges.
What the CoinMarketCap Web Traffic Factor consists of
CoinMarketCap’s Web Traffic Factor takes into account various factors before arriving at a final output score. They track the numerous data points provided by various web traffic solutions (SimilarWeb, Alexa, Ahrefs) before arriving at a final score. Some of these data points include pageviews, unique visitor count, bounce rate, time-on-site, relative ranking and keyword searches on major search engines.
What factors will influence on rate at CoinmarketCap
After collecting the data collected from the various web traffic solutions of exchanges, CoinMarketCap attributes weights to the data in the following manner:
- Pageviews (20%)
- Unique visitor count (15%)
- Bounce rate (10%)
- Time-on-site (5%)
- Relative ranking (25%) – used Alexa’s relative ranking for all exchanges as data for this variable. An example of this data for Binance.com and Coinbase.com
- Keyword searches (25%) – tracked the search engine ranking of exchanges for a select pool of keywords (for example, “cryptocurrency exchange,” “bitcoin exchange,” “cryptocurrency trading,” etc.)
After tallying the data, CoinMarketCap distributed scores based on the relative performance of the exchanges in the above categories. The score is a relative point scaling system from 0 to 1,000. The top exchange will always be given 1,000 points, and the rest of the exchanges are given scores based on a relative comparison against that exchange. High scores would reflect high amounts of web traffic, which is a good indication of high user count. The score will be updated on a monthly basis.