Market Pair Rank
Volume inflation has been a problem that CoinMarketCap has been actively addressing since 2018. We have noted that some of the exchanges listed on CoinMarketCap have reported inflated trading volumes to give the impression of legitimacy and a false sense of liquidity in markets. This has, in the past, contributed to eroding confidence in the cryptocurrency industry and has, at times, misled both investors and traders.
CoinMarketCap realizes the severity of the situation and has worked tirelessly on a comprehensive and algorithmic solution to the problem, as is our standard practice. After extensive research and crunching reams of data, we identified two main drivers of volumes — liquidity of markets, and the number of traders on the exchange. In general terms, within a retail-driven crypto trading market, it is difficult to have high volumes without (i) a large number of traders and (ii) liquid markets.
With modifications to our Market Pair Ranking algorithm and introduction of the Confidence indicator, we strive to achieve two main objectives:
- Rank market pairs of all cryptoassets using a combination of Reported Volume, Liquidity Score and Web Traffic Factor.
- Highlight the confidence level we have that the exchange’s Reported Volume is accurate.
Market pair ranking will be done by taking the key variables of Reported Volume, Liquidity Score and Web Traffic into consideration. The algorithm takes all these factors as inputs into a machine learning model, and automatically ranks market pairs based on the dynamic weights attributed to each of these criteria. The top market pairs for each cryptocurrency will be those that have the highest relative Reported Volume, Liquidity Score and Web Traffic, instead of simply being weighted on Reported Volume alone. This triage of factors, fairly calculated by an automated machine learning algorithm, is expected to provide a more comprehensive picture of each market pair, ensuring that users make better decisions on where to trade.
Due to the launch of the CoinMarketCap indices (administered by Solactive, which is fully compliant with IOSCO Principles for Financial Benchmarks), a project’s eligibility for a Top 200 Cryptoasset Rank will now be determined by market capitalization and the following factors:
- Our ability to verify the project’s supply information with no incongruities and double counting of market cap (e.g. wrapped assets)
- Strengths in a number of areas of Listings Review Criteria's Section C (Evaluation Framework) below
- Significant liquidity/trading activity with normal bid-ask spreads across sufficient sources of market data
- Absence of significant price discrepancies across CMC-supported exchanges
- The asset is traded on at least three exchanges that possess a number of the following attributes:
- Minimal data irregularities
- Publishes granular API endpoints
- Active product development and communication from the team
- Active/engaged community of a considerable size
- Accredited/Audited by a reputable 3rd-party
- DATA Partner
The aforementioned factors are intended to provide some degree of transparency and general guidance without disclosing internal thresholds so as to prevent projects from ‘gaming’ or manipulating the rankings.
- To use an analogy, we have shared the ingredients but not the recipe/secret sauce because the latter is proprietary and a trade secret.
- Another analogy would be publishing the syllabus without given the answers to the exam questions.
- Consider how search engines typically publish general guidelines on how their algorithms work without being too specific.
Further, the sheer variety of monetary and accounting models used by projects adds complexity to the process of verification, which means that there will be occasions where CoinMarketCap will have to exercise its discretion in determining a project’s circulating supply and/or eligibility for a Top 200 ranking (e.g. stablecoins, privacy coins, sidechains, and exchange tokens). Consequently, maximum rank eligibility of a project will fall under one of three categories:
- Top 200 Rank: The project must minimally have a CMC-verified market capitalization and fulfill the requirements outlined in (1) - (5) above.
- Top 201 Rank and beyond: The project must minimally have a CMC-verified market capitalization but does not need to fulfill the requirements in (1) - (5) above.
- Unranked: Cryptoassets without a CMC-verified market capitalization sorted by 24h trading volume.