Updated with response from Justin Giudici, Chief Product Officer of the Telos Foundation, in the ‘Team response’ section.
Without access to private communications or someone admitting it, there is no way to prove when crypto volume is fake. However, there is universal agreement that fake volume in crypto is rampant. This paradox has been one of the hardest parts of running Marketcap.one. I see volume that is probably fake everyday but I can’t prove it, so what do I do about it?
I’ve never before delisted a token for having fake volume but after months of monitoring and consideration, I have decided to delist Telos for this reason. It is the most egregious case of fake volume I have ever seen in EOSIO.
Some have asked why a project would want to fake their volume. Volume is vitally important to a token. Smart traders and investors want to see that a token has good volume, so they have liquidity to enter and exit their positions. We hear this over and over from our users.
Another reason they may wish to fake their volume is to get exchanges to list the token. Exchanges aren’t going to list a token if it has no or low volume on other exchanges because they’re not going to make any trading fees.
Volume vs peers
Telos has a tiny trading volume on all of their exchanges, besides one: CoinTiger. With that exchange excluded, their volume is in line with other EOS sister chains like WBI, YAS, and BOS. All have low liquidity, large spreads and low volume. This is the life of any EOSIO sister chain not named WAX.
However with their CoinTiger volume included, Telos consistently has higher volume than any EOSIO token. Frequently they had more volume on that one exchange than the volume on Newdex for all tokens combined. This was a key reason I felt compelled to take action. Our site was giving the impression Telos was one of the strongest tokens in all of EOSIO, when in reality it’s fairly weak in every metric if you exclude the CoinTiger volume.
Consistency of CoinTiger volume
For months Telos volume on CoinTiger was right around $150,000 per day. Everyday, like clockwork. $150,000 one day and $149,900 the next and then $150,100 the next. Someone is trading $150,000 nearly exactly every single day, 7 days a week? With 100x the volume of other exchanges? I’ve never seen anything like that and it’s extremely suspicious.
I feel confident anyone knowledgeable would agree on this point if they watched the volume day-in and day-out. It’s just too large and too consistent to be legitimate volume.
Market-making and fake volume
A market-maker provides liquidity for a token (or a stock or anything) by posting buy and sell offers at the top and bottom of the spread. This allows those who want to trade to have liquidity to do so. This is a common practice in regulated financial markets and there is nothing wrong with it, so long as the market-maker doesn’t do anything besides post offers to buy and sell.
There are also lots of shady market-makers in crypto for whom market-making is just code for faking volume. Projects pay them to wash trade — buying and selling to themselves — to create fake volume.
If you’ve ever seen a seemingly low liquidity token have tons of trading activity on some random exchange, this is probably what is happening. A market-maker is using bots to trade with themselves.
This is the Telos trade history on CoinTiger right now and it’s very consistent for what it looks like 24 hours per day, 7 days per week. Six orders in less than 9 minutes. I would classify that is a very high number of trades for a token like Telos on an exchange like CoinTiger. It looks very suspicious. More typical would be a trade every hour or two. This, to me, strongly indicates market-making bots are placing many of those trades.
If you want a deeper dive into the dark side of crypto market-making, this is a great read on it.
Economic Development Fund
The above is from Telos marketing materials. They allocated money every month for ‘market-making’. I’m sure some other project has done that but I’ve never seen it and it’s very odd. Usually these matters are kept secret precisely because they’re so commonly associated with fake volume. So we know that Telos has used market-makers.
Connecting the dots
Any of these things by themselves would not be enough for me to feel confident acting upon. However taken together, they look really, really bad. We have:
- huge, unrealistic volume relative to similar tokens.
- a very suspicious consistent volume at CoinTiger
- trading indicative of a market-making bot on CoinTiger
- a team that advertised their intent to pay market-makers
And finally, we have the way the team has responded to all of this.
I asked the team privately about this and they feigned ignorance. They say ‘we have no idea why there is so much volume on CoinTiger, people must just like our token.’ They act completely oblivious to how bad it looks. Doug and Justin, these guys are smart, they’ve been in crypto a long time. They have to understand the volume looks suspicious.
That’s not believable. If they were not the ones faking the volume they would certainly be aware that it looked fake. They know that Telos having the highest volume of any EOSIO token is not just the natural order of things.
Update: Justin Giudici, Chief Product Officer of the Telos Foundation, had this response to this article:
I believe this is as close as one can come to proving fake volume in crypto, in the absence of a confession. If this is not enough to label volume as fake, crypto is going to have a very hard time going forward as nobody will ever be able to be held accountable for it.
I welcome community feedback on this, positive or negative. It will help me to shape how we handle this sort of thing in the future.
One more thing…
This is the first post on Marketcap.one News. You can expect more. I tried for a long time to convince the existing EOSIO news outlets to publish honest reporting that does more than shill product releases but they’ve all refused. So we’re going to have to do it ourselves.
We’ll publish plenty of positive stuff but we will not have a blackout on negative reporting the others all have. Honesty. Integrity. Objectivity. These are our virtues. I hope you like Marketcap.one News but that isn’t my goal. My goal is to earn your trust, by consistently living up to those virtues. I am proud of this reporting being the first example of that.
If you have a good story you’d like us to write about, please forward any relevant information to our Telegram group. Anything at all, a product announcement, some drama, whatever. Bring it on.