Ethereum Trading Volume Surges Overnight—Is It Artificial?

A whopping $8 billion worth of Ether (ETH) was traded yesterday over a 24-hour period. A single exchange was responsible for $5 billion worth of that trading volume, which alone is ten times the trading volume of Bitcoin. Trustnodes broke the story, while commenters all over the web are dismissing the data as fake, or at best, innaccurate.

Reddit user alexline had this to say:

 “[We] need some sort of quality control on data pulled in by CoinMarketCap. I get that they’re an aggregator and things usually average out, but this is obviously an exception (and should be filtered out).”

This is not the first time that CoinMarketCap has been accused of publishing unreliable data. BitForex, a minor exchange, was accused of creating false volume when it ended up on CoinMarketCap as the exchange with the 12th highest trading volume.

CoinMarketCap has admitted that wash trading (in which artificial trade volumes are created when assets are bought and sold over and over) is a problem:

“In order to ensure that their listings remain active on certain exchanges, sometimes projects are instructed to maintain a minimum level of volume. This causes projects to heavily employ market making services and bots to trade their own coin to inflate their volumes.”

In yesterday’s case, Ether and Tether (USDT) were traded back and forth. The fact that the same coins and the same exchange were responsible for most of the volume is damning evidence against the volume’s legitimacy. In addition, Tether was previously used in wash trading on the Kraken exchange.

However, this does simplify what the exchange is actually doing. Trustnodes attributes the trade volume surge to the EXX exchange, which offers “transaction mining” or “trade mining.” In trade mining, tokens are generated as trades are made. In other words, people—not bots—may be participating, and it is hard to say to what extent.

This practice is controversial: it provides an incentive to individuals to perform wash trading, clogs networks, increases transaction fees, and is often called a Ponzi scheme. This had led some market analysis sites, like Brave New Coin, to delist exchanges and tokens that deliberately participate in transaction mining.

Despite the dubious achievement of the exchange in question, Ethereum’s market price did not change very much and has hovered around $460 to $480 for the last few days. There was also no reported congestion of the network or spike in transaction fees.

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