CoinMarketCap and CoinGecko are two major crypto analytics platforms that rank crypto exchanges based on trustworthiness.
In light of what happened last week, both whiffed on FTX.
In early November, CoinGecko had FTX ranked as the third-best cryptocurrency exchange, with its trust score a perfect 10. On Nov. 8, CoinMarketCap ranked FTX as crypto’s third-best exchange, behind only Binance and Coinbase. On Nov. 11, FTX declared bankruptcy after it was found to have propped up related company Alameda Research with customer deposits and illiquid native tokens that blew a hole in its balance sheet.
CoinMarketCap and CoinGecko garnered 104 million and 33 million visits last month, respectively. The sites serve as a sort of front porch for crypto, as the top two results if you Google “crypto market cap.” David Tawil, the CEO of ProChain Capital, says this reputation may not last.
“I don’t think their services are going to provide much value to anybody for a long time. I don’t think that they’re gonna get advertising dollars because they’re not gonna get clicks,” Tawil told Blockworks.
Tawil cast CoinGecko and CoinMarketCap as crypto’s answer to TradFi credit rating agencies, such as Moody’s, S&P and Finch. The scores serve as a starting point for bond investors, but users also run the risk of the ratings being wrong — as was the case leading up to the 2008 mortgage crisis. And investors seem unlikely to forgive and forget firms who promoted FTX as crypto’s own liquidity crisis unfolds.
“I think [CoinGecko and CoinMarketCap’s] reputation is thrown out the window,” Tawil said.
The two analytics platforms rank exchanges based on an opaque algorithm that uses factors such as liquidity, security, and usage in their scoring. Asked how FTX was rated trustworthy despite being, well, not trustworthy, Zhong Yang Chan, CoinGecko’s head of research, said factors like whether an exchange’s assets are liquid were not talked about much before the past two weeks.
“Only with recent developments surrounding FTX has there been a concerted push for centralized exchanges to adopt greater transparency around their reserves,” Chan said in a statement to Blockworks.
CoinMarketCap did not directly comment on how FTX achieved its ranking — a spokesperson told Blockworks the company’s exact methodology is kept private to prevent exchanges from gaming its rankings. On Nov. 2, the platform ranked FTX third in average liquidity, which CoinMarketCap measures based on price slippage during trades.
In the past week, CoinGecko began tracking liquidity by adding a proof of reserves tab where users can see the amount of assets exchanges have on-hand, based primarily on data from DeFiLlama and Nansen.
By the end of 2022, “only exchanges that have made attempts to prove solvency will be scored well,” Chan said.
CoinMarketCap does not yet include proof of reserves on its site, but the platform told Blockworks it plans to do so “as soon as possible.”
Both platforms currently rank Binance as the top crypto exchange, though the firm’s lead is especially pronounced on CoinMarketCap, where Binance is scored 9.9, and No. 2 Coinbase is an 8.0.
Also, Binance owns CoinMarketCap.
“Binance and CMC operate independently,” CoinMarketCap told Blockworks in a written statement.
Be that as it may, Tawil said, “That’s inappropriate, because that conflict of interest is absolutely clear.”
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