Paris-based data provider Kaiko has introduced a new ranking of 35 crypto exchanges. The ranking places two of the world’s largest three exchanges by trading volumes—Binance and FTX—outside the top ten.
According to Kaiko, hundreds of cryptocurrency exchanges operate around the world, governed by a multitude of regulatory regimes, resulting in highly variable operating standards. As such, official statistics and information used to compare and understand the exchange landscape are difficult to obtain, the firm says.
How Kaiko’s rankings work
Kaiko has released initial ranks and scores for 35 centralised cryptocurrency exchanges and plans to update them half-yearly.
The data firm calculates a headline score for each exchange. The exchange score is a weighted composite of individual scores for six criteria: governance, business, technology, data quality, security and liquidity. The governance score receives the highest weighting—30 percent—in the composite.
Kaiko then calculates exchange ranks, which are based on the headline score and individual criteria scores exceeding a minimum level. The ranks therefore reward exchanges with consistently high scores for the six underlying criteria.
Coinbase leads, Binance and FTX outside the top ten
As at January 2022, Kaiko allocates the top exchange rank—AAA—to only one exchange (Coinbase), with three exchanges (Kraken, Gemini and Bitstamp) receiving the next highest rank, AA.
The first and third largest crypto exchanges in the world by self-reported trading volumes, Binance and FTX, receive ranks of A and B from Kaiko. This places them 14th and 22nd, respectively, in the overall ranking of 35 exchanges.
Binance recorded relatively low scores from Kaiko for governance and technology, while FTX recorded low scores for governance and data quality.
Binance’s average daily trading volumes are often greater than those of its four largest competitors combined
Binance’s CEO, Changpeng Zhao, recently said that the exchange had completed as much $170bn of transactions in a single 24-hour period. Binance’s average daily trading volumes are often greater than those of its four largest competitors combined.
Earlier this week Bloomberg reported that Binance’s CEO, Changpeng Zhao, is worth as much as $96bn from his stake in the exchange, making him the twelfth-richest person in the world.
Binance disputes Bloomberg’s figures, saying the valuation estimates for Binance were “incorrect and far off” without providing further details.
The exchange rankings from a competing data provider, CryptoCompare, allocate the top grade (AA, in this case) to Coinbase, Gemini, Bitstamp and Kraken, as well as to two other exchanges, CrossTower and ItBit.
CryptoCompare gives grades of BB to Binance and FTX.
Increasing competition in crypto data provision
According to Kaiko, the exchange rankings will serve as a building block for cryptocurrency reference rates and benchmark indices.
The firm’s product launch is a sign of increasing competition in the market for cryptocurrency data.
In October, investment advisory firm Wilshire, in conjunction with the Financial Times, released new digital asset indices that use data from exchanges with a minimum A rating from CryptoCompare.
Futures exchange CME has used the CME CF Crypto Currencies indices to calculate the bitcoin reference and real-time rates that underlie its futures contracts since November 2016.
The firm’s product launch is a sign of increasing competition in the market for cryptocurrency data
The CME CF Crypto Currencies indices rely on pricing data from several exchanges, including Bitstamp, Coinbase, Gemini, itBit and Kraken.
Binance calculates its own indices for the purpose of its exchange-traded derivatives contracts.
Past flash crashes and market manipulation
In the past, divergent prices between different cryptocurrency exchanges and exchange outages have caused exchanges to drop out of calculations of real-time cryptocurrency indices during periods of market volatility.
Separately, in February last year, clients of Kraken launched a lawsuit against the exchange after seeing their positions in ethereum liquidated at apparently below-market prices.
And the leading cryptocurrency exchange in Kaiko’s ranking has been fined for the past manipulation of individual cryptocurrency prices, affecting broader market benchmarks.
In March last year, Commodity Futures Trading Commission (CFTC), which regulates the US derivatives markets, said it had levied a $6.5m penalty on cryptocurrency exchange Coinbase for fictitious trade reporting in bitcoin and litecoin during 2018.
This “potentially resulted in a perceived volume and level of liquidity of digital assets, including bitcoin, that was false, misleading, or inaccurate,” the CFTC said.
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