Binance Smart Chain: Trading Volume Only Fake? New investigation contradicts
Investigation into claims that Binance Smart Chain reported fake volumes reveals some interesting findings.
After several allegations of fake volumes related to Binance Smart Chain (Binance CEO: We’re in the early stages of a multi-year crypto bull cycle!), a number of industry researchers including Andrew Kong [@Rewkang] have looked into the numbers.
His most popular automated market maker, PancakeSwap, has The News Spy posted some huge volumes recently. This one also came into the spotlight.
FTX derivatives exchange founder Sam Bankman-Fried (SBF) was also involved in the investigation. SBF stated that he believes most of the reported volumes are real.
Binance Smart Chain Volumes: Real or Fake?
According to the researchers, the most frequently cited questionable activity was that of unique addresses. 1inch Exchanges CHI Gas Token deployment was primarily blamed for this sudden surge in unique addresses.
So: if BSCscan changed its algorithm to exclude addresses generated by the CHI contract, the numbers would have normalised, according to the analysis.
Volumes on PancakeSwap had also been highly questionable recently, it said:
„The scepticism about BSC is partly due to PancakeSwap’s (PCS) high volumes and TVL seemingly coming out of nowhere, combined with Asian exchanges having a reputation for wash trading.“
Wash trading is when traders buy and sell tokens at the same time to manipulate the markets. This is much more difficult on a decentralised exchange than a centralised one. Moreover, the former’s data is openly available on the public blockchain.
Kong explains, „Binance, in order to launder trading, would have to pay fees – rather than refund or waive them. This could amount to as much as $730 million annually.
Trying to identify fake volumes on exchanges, comparing liquidity profiles to volumes sets off alarm bells for those with low liquidity.
In PancakeSwap, Total Value Locked (TVL) increased along with volume, indicating real numbers. Also, the researcher introduced a concept called DEX AMM Velocity. This is essentially a ratio of transaction volume vs. TVL that tracks the velocity of turnover of AMM capital.
Using this, he found that PancakeSwap has recently had comparable numbers to Ethereum (to buy Ethereum at eToro guide) based Uniswap, and has even been able to outperform it due to cheaper transaction prices for arbitrage trading:
„Given that a tx on Pancakeswap on BSC is 100x cheaper than a tx on Uniswap (and the tx fee on PCS is 20 bps vs. 30bps), one would also expect significantly more arbitrage opportunities.“