A Ranking Model for Cryptocurrency Exchanges
Trading venues for cryptocurrencies, so called cryptocurrency exchanges, have undergone a fast development. Currently cryptocurrencies tallying to more than USD 60bn are traded on more than 200 of such platforms daily, thereby vastly surpassing the volume traded of numerous national stock exchanges such as the ones of Italy or France. Notwithstanding cryptocurrency exchanges are typically not subject to a specific regulatory framework. Consumers who want to use these novel services are left virtually blindfolded when it comes to pivotal selection criteria. Yet, not even attempting to discriminate among the quality levels provided by the various cryptocurrency exchanges would be tantamount to throwing out the baby with the bath water. That is why we have developed an innovative scoring system to differentiate among cryptocurrency exchange offerings and published a scientific paper ,"Evaluating Crypto Exchanges in the Absence of Governmental Frameworks - A Multiple Criteria Scoring Model" , presenting this system. In the absence of regulatory frameworks we identify 34 factors that may be considered by consumers when choosing the right cryptocurrency exchange for their needs.
Our approach for modeling a suitability ranking for cryptocurrency exchanges follows a two-level approach. On a first level, we identified main themes relevant for deciding for or against a cryptocurrency exchange and on a second level, we identified the key items contributing to the first level themes.
The first level themes are mainly grounded in theory and have been identified as the following: User Experience, Fees & Costs, Trustworthiness, and Support.
After surveying multiple cryptocurrency exchange offerings we identified the following distinguishable factors as fundamental to the User Experience of cryptocurrency exchange offerings: Ease of Registration, Demo Account, Funding, Withdrawals, Minimum Order Amount, Geographic Scope, Languages, Corporates, Product Universe, Trading Functionality, Additional products, Initial Exchange Offerings, Technology, Multichain.
As far as Fees & Costs are concerned, we propose to include the following items in a measure for this item: Actual Trading Volume – as a proxy for the spread – and Fees charged.
Under the Trustworthiness umbrella we propose the following items: Tenure, Legal Jurisdiction, Operative Jurisdiction, Number of Users, Overstated Volume, Insurance, Registration Soundness, Authentication, Centralisation, Wallet Option, Inconsistencies.
The following positions were included in the Support category: Interaction types, Channels, Languages, Reachability, Response time.
Building on these criteria we ran an initial empirical test using data from four cryptocurrency exchanges domiciled in Singapore. Using a uniform distribution function of the above mentioned first level themes as well a uniform distribution function on the second level we were able to establish a clear ranking among those exchanges and derive clear scores on the four first level themes.
Whilst being the first identifiable work of its kind in the field of cryptocurrency exchanges, this scoring model requires further refinement based on empirical data. We will therefore continue the work on this model with a broader data set, allowing us to adjust themes, items and weights, if necessary. Our paper can therefore be seen as a remedy to the current state of insufficient transparency in the field of cryptocurrency exchanges which is expected to deteriorate further over coming years as many more offerings will be brought to the market.
Until a comprehensive regulatory framework is presented to safeguard the interests of consumers, we hope that our scoring model may serve as a first robust guardrail. Our impartial not-for-profit project Cryptogenes.io will allow the public to track the progress of our journey.
Patrick Schueffel - Cryptogenes
Nikolaj Groeneweg - Cryptogenes