1. What is “Avg. Liquidity” for Exchanges?
Tracking the “liquidity” of an exchange poses an interesting problem. We have previously described the problems of reporting liquidity of a market pair, and exchanges are essentially made up of multiple markets. As we have moved towards a scoring system for reporting liquidity of market pairs, a mere summation of these scores might lead to an unintended skew of the results.
Exchanges with a high number of market pairs will be scored higher than those with lesser markets – simply by having more markets.
In order to better showcase liquidity of exchanges and ranking them as such, we decided to take the Average Score of the most liquid market pairs of exchanges, excluding any stablecoin/stablecoin pairs. Hence, the top exchanges on this list would have:
- High liquidity in their most active markets
- A good number of liquid market pairs, which will be great for traders and investors that are interested in a variety of tokens.
2. Why is XYZ exchange scored so high? I do not trust them!
Liquidity Score is calculated by tracking the order book depths of all exchanges via their APIs (or what the exchanges submit to us). The scores are a purely quantitative measure of liquidity of a market pair.
In ranking exchanges, we take an average of the most liquid market pairs of and exchange and display that (as described in Question 1). While having liquid markets is a good criteria for shortlisting exchanges, it is not the only factor that an investor/trader should consider. Please read the “Bonus Insights” on this blog post for more information.
3. With Liquidity Scores, should I still care about the Volume metric of exchanges?
Liquidity Scores and volumes are entirely different concepts – one measures liquidity of markets, the other tracks the amount of assets that changes hands.
However, they are correlated to a certain degree. A highly liquid market can imply a high volume market as traders usually prefer to trade in exchanges that have a high amount of counterparties as that reduces the slippage on their trades.
We understand that there has been some concern around the volume inflation of some exchanges in recent times.
We are rolling out a new Adjusted Volume ranking on CoinMarketCap shortly that will address this concern directly, so stay tuned.