Focusing on exchanges as the FTX fiasco continues, a new research paper suggests that nearly three out of four transactions on unregulated exchanges are fake.
A working paper titled “Cryptocurrency Trading” was recently published by the National Bureau of Economic Research (NBER). Using statistical and behavioral patterns to determine which transactions were legitimate and which were not, the article studied 29 unregulated exchanges and came to the conclusion that, on average, more than 70% of the volume within the platforms is laundered transactions.
Researchers have found that on some exchanges the wash trade volume is as high as 80% of the total trade volume. On twelve “tier 2 exchanges,” the researchers wrote, laundry trades accounted for nearly 80% of the total transaction volume. The researchers wrote:
“These estimates translate to more than $4.5 trillion traded in the spot markets and more than $1.5 trillion in derivatives markets in the first quarter of 2020 alone.”
According to the researchers, there are short-term incentives to trade laundry. The study notes that fake transactions often affect exchange ratings on data and statistics sites such as CoinMarketCap. Moreover, fake transactions also affect the prices of cryptocurrencies on exchanges in the short term.
Meanwhile, the FTX debacle continues to gain attention as wallets linked to Alameda Research show movement, funneling about $1.7 million in assets through crypto-scramblers. The moves were noticed days after former FTX CEO Sam Bankman-Fried was released on $250 million bail.
As the collapse of FTX hurt people’s trust in centralized exchanges (CEXs), executives working for CEXs have expressed their feelings about how to restore user trust. On November 25, Cointelegraph spoke with several leading cryptocurrency exchanges and found that many believe the sector can still recover after FTX.