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Cryptocurrency Exchanges Are Cleaning up Their Act

Cryptocurrency exchanges are cleaning up their act

Cryptocurrency Exchanges Are Cleaning up Their Act

Cryptocurrency exchanges are cleaning up their act

Ask a dozen crypto traders for the reason behind the recent rally and you’ll get a dozen different theories. Bakkt futures, Microsoft building on Bitcoin and Whole Foods accepting crypto have all been cited as fueling the bull market that’s broken out. While these factors have certainly helped, there’s a less documented reason why the crypto market has renewed confidence: exchanges have cleaned up their act, turning what was once a hostile battleground into an arena that’s fit for purpose.

Also read: How to Send Bitcoin Cash via Text Messages to Anyone With a Mobile Phone

The Three T’s That Define 2019’s Leading Exchanges

“Tier one” is a designation that’s traditionally been applied to the largest and most desirable exchanges for token listing. It’s a category where the likes of Binance, Coinbase, Bitfinex, and Bitstamp reside. But this year, tier one exchanges are defined less by their exorbitant listing fees, which in many cases have since been waived, but rather by their commitment to espousing the three T’s: transparency, trust, and true volume.

The first of these can be seen in the measures being taken by platforms such as Binance, and to a lesser extent Bittrex, to provide advance warning of large cold wallet movements to avoid spooking users. This is accompanied by frequent and detailed communication, particularly when things go wrong, such as in Binance’s $40M hack a fortnight ago. Although hacks are still as commonplace today as ever, at least now the crypto community is kept fully informed, rather than being left in the dark. Trading platforms such as Kraken and Poloniex have taken to publishing quarterly reports, much like those issued by publicly listed companies. Whether performed out of genuine care or a cynical attempt to ride the latest trend, this new culture of transparency has been welcomed by traders seasoned enough to recall Mt. Gox, Vircurex, and Btc-e.

Messari’s real 10 index

Trust Through Proof of Solvency

Of the three T’s, trust is the hardest for an exchange to acquire, since it must be built up over time, and can be eradicated via a single misstep. While Binance has earned credit for its response to the recent hack, it’s safe to say Changpeng Zhao won’t be caught boasting about its impregnable security record again. Trust encompasses every facet of running an exchange, but is synonymous with instilling confidence in users that the platform can cover its liabilities. The Quadriga collapse is still a sore point for Canadians who lost funds when the exchange collapsed under the weight of its own insolvency. The recent revelation that Bitfinex has essentially been operating a fractional reserve, due to $850M of frozen assets, has added further weight to the movement for trust through proof of solvency.

A number of solutions have been proposed by which exchanges can show that customer deposits are fully covered, without disclosing sensitive data pertaining to account balances, or even needing to reveal the total value of its crypto assets. One such method, being pioneered by private computation network ARPA, can be used to calculate the average solvency level of exchanges without having to disclosing any sensitive data whatsoever.

“With ARPA network, data can be integrated, computed, and analyzed without being exposed,” explains co-founder Yemu Xu. “Computation will be done on encrypted data, on a distributed manner, and only the result will be viewable to the interest party.” He adds:

This technology is called secure Multiparty Computation (MPC). In the case of exchanges, exchanges can jointly compute an average for their solvency level without ever giving away their own solvency data.

Turn up the True Volume

Whereas wash trading was once de rigueur in crypto, it’s now frowned upon and penalized. Credit for cracking down on fake volume must go to the market data sites that have championed honest reporting, over Coinmarketcap’s more gameable system. “Honest” volume is fast becoming the norm rather than the exception, with Asian exchanges that doggedly insist on wash trading being shunned by a tranche of the market.

Streamex is a crypto trading platform where beginners can entrust expert traders to act on their behalf via community trading pools. It’s currently in beta, as it gears up for its full launch on July 1, heralded by a $1M trading competition. CEO Vedran Sisak told news.Bitcoin.com that cleaning up the reputation of cryptocurrency exchanges is crucial to onboarding new traders. “Beginners don’t want to be told they’re entering a rigged game, where wash trading and other deceptive behaviors are deployed to feign liquidity,” he explained. “They want to know that they can enter and exit trades with minimal slippage, and trade on reputable exchanges that are solvent and attentive to security and good customer service.”

Projects whose tokens have yet to reach exchanges are also now prioritizing platforms that champion honest reporting, over those that cook the books. Andy Yuen, CEO of fitness token Mhealthcoin, said: “The widespread availability of tools for discerning true volume makes it much easier to determine which exchanges are worth partnering with. We’ve spoken to a few crypto exchanges regarding listing Mhealthcoin, and have been drawn to those whose reputation for honest reporting lends them credibility. Being listed on an exchange where there’s rampant wash trading reflects badly on a project.”

Some of those tools for checking up on exchange volume include Messari’s Real 10 index, which recordes the trading volume of 10 platforms known for their accurate reporting, as well as The Tie’s new data transparency portal. As Joshua Frank of The Tie explained to news.Bitcoin.com: “Our team analyzed twenty factors across over thirty of the largest cryptocurrency exchanges to develop a comprehensive methodology for evaluating exchanges’ transparency, trustworthiness, and compliance. Among the factors that we analyzed were if these exchanges used any market surveillance tools like Nasdaq SMARTS, if they had formal market manipulation policies, and what data they made publicly available through their API such as historical trade level data and live order books.”

Nomics

In addition to the efforts being undertaken by The Tie, Messari, and Nomics, which ranks exchanges using a transparency score, a group led by Mike Novogratz’s Galaxy Digital and DRW’s Cumberland is pushing for a white list to bring the same standards to the OTC market for BTC.

Despite the progress that has been made in improving the reputation of cryptocurrency exchanges, the majority of platforms have yet to clean up their act. Exchanges still shamelessly wash trade to game CMC’s ranking system, Bitfinex still catches flak for its opacity, and, according to The Tie, less than 50% of crypto exchanges have any policies whatsoever against market manipulation such as wash trading and order book spoofing. Nevertheless, the tide is slowly turning. Where once it was profitable to engage in such behavior, now there is greater capital to be made from advocating transparency, building trust, and reporting true volume.

Do you think cryptocurrency exchanges are improving and becoming more accountable? Let us know in the comments section below.


Images courtesy of Shutterstock.


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Kai Sedgwick

Kai’s been playing with words for a living since 2009 and bought his first bitcoin at $19. It’s long gone. He’s previously written white papers for blockchain startups and is especially interested in P2P exchanges and DNMs.

Published at Tue, 14 May 2019 22:01:53 +0000

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Options for Borrowing and Lending With Cryptocurrency Are on the Rise

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Cryptocurrency has opened up a new world in the financial sector that was primarily owned by banks, namely the borrowing and lending of capital.

While peer-to-peer borrowing and lending has developed in recent years in the fiat currency space, it is only recently that companies have been finding methods of replicating these ideas in the cryptocurrency space. What follows is a short evaluation of several available options.

SALT

SALT is a lending platform for blockchain-backed loans. No credit check is required: Users purchase  ERC20 SALT tokens to become a member and then put up bitcoin or other blockchain-backed assets as collateral. They can then borrow money from the platform’s network of lenders. Once the loan is paid back, borrowers get their crypto back: There are no prepayment penalties.

SALT makes no guarantee that a sufficient pool of liquidity is available to fulfill every loan request right away, however, even for approved borrowers. If the pool of money provided by the lenders is all lent out, then prospective borrowers will have to wait for more lenders to enter the system or for funds to be paid back into it.

The cost of one SALT token is set at $25. Tokens are currently sold within the SALT system; however, the token is also available on several exchanges where it is currently trading at about $4. SALT is used to pay for your membership in the SALT system; it is a tiered annual fee that varies based on the size of the loan. At the bottom is 1 SALT that covers up to $10,000 and at the top it is 100 SALT to borrow over $1,000,000 with various tiers in between.

Interest rates on the loans themselves will vary between 10 percent and 15 percent, depending on the terms of the individual loans. When borrowers apply for a loan, the available options are then presented and they can choose among them.

All of the member lenders at SALT are Accredited Investors under Regulation D of 17 CFR § 230.501 et seq., who have passed the SALT Lending Suitability Test. The loans are not transferable via blockchain; they are themselves securities that are transferable through existing financial channels.

Unchained Capital

Unchained Capital is very similar to SALT in that it provides loans against your bitcoin capital. Their details are easier to find on their website than SALT, namely the following:

  • Interest rate is 10 14 percent APR inclusive of all interest and fees

  • Terms are 3 24 months with options to renew

  • Loan to value ratio is 50 percent. Borrow $1 for each $2 you deposit as capital

  • Borrow up to $1 million without a credit check

  • Make monthly payments on the interest. Due in full on the final payment

CEO Joe Kelly told bitcoin Magazine that Unchained Capital is working with accredited investors and small institutions. They are specifically reaching out to partners to work with them and do not have any public call for investors. Interested investors, however, can contact them and see about working with them. Their current lending fund is over $10 million at the time of this writing.

EthLend

EthLend has more of a full free-market approach as a facilitating platform. Borrowers and lenders can use their system to connect and negotiate everything from interest rate to duration. The platform is entirely based on Ethereum, any other ERC20 tokens are admissible as collateral on the loan. If borrowers fail to abide the terms of the smart contract, then all collateral is forfeit.

This setup is similar to what is currently available with many peer-to-peer fiat lending options. The price of the LEND token is not clear because of various discounts and the highly fluctuating price of ether right now, but the purpose of the token is to provide discounts on the fees charged to use their system.

Othera

Othera says they use blockchain technology to facilitate digital loan contracts, manage their risk and tokenize the repayment cashflow. There has been news going around about the company since the middle of 2016, but their website offers no demonstrations and very few details. A recent partnership announced with London-based commercial real estate lending company Lendhaus indicates big things are in the works, but the Lendhaus website itself is very slim on details and their Twitter profile was only recently created and has no tweets. It isn’t clear if the platform is currently available. bitcoin Magazine reached out to Othera reps for more information but has not yet received a response.

Everex

Everex has been in the press for over a year and touts a number of products and services, such as the ability to transfer, borrow and trade in any fiat currency around the world. One aspect is their EVX token which provides a multitude of utility functions in their microfinance and payment program. EVX token ownership is required to access the system and can also be earned as an incentive or reward based on terms the lenders can specify. Those same EVX tokens can then be used as collateral for secured lending. To use their platform you need to either install their mobile wallet or use their Everex web service.

There is a lot of activity in other parts of the financial market with regard to cryptocurrency as well, such as tokenizing real world assets as investment vehicles. What this tells us is that there is a lot of interest and activity in this space that is certainly going to change the face of banking.

Note: This article is for informational purposes only. bitcoin Magazine does not necessarily endorse any of the above platforms. Readers are encouraged to perform their own due diligence.

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