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What is the Blockchain Transparency Institute?

January 24, 2022 - 5 min read

The Non-Profit Group Investigated Crypto Trading Fraud

The Blockchain Transparency Institute (BTI) was a non-profit group of cryptocurrency and blockchain experts that attempted to provide additional transparency to the crypto and blockchain industry by issuing annual reports focusing on fraud related to cryptocurrency exchanges. Before closing and shutting down its website, the institute issued over 200 reports on various crypto exchanges and trading platforms in order to analyze, rank, and grade the accuracy of their data and their susceptibility to fraudulent behavior. 

The Blockchain Transparency Institute (BTI) was a non-profit group of cryptocurrency and blockchain experts that attempted to provide additional transparency to the crypto and blockchain industry.

The BTI Verified Initiative Was Intended To Expose, Prevent Wash Trading 

In 2019, the Blockchain Transparency Institute announced a new program that was intended to expose wash trading in the cryptocurrency industry. Wash trading occurs when a trader buys and sells the same asset simultaneously (or in rapid succession) in order to create a trail of artificial market activity. This is often done by placing a sell order and then buying the asset from themselves. 

Wash trading is generally considered a highly unethical practice and is illegal under U.S. law on traditional stock and commodity exchanges. Since the IRS currently considers cryptocurrency to be private property, wash trading rules do not currently apply to cryptocurrency and crypto exchanges. The IRS may ban crypto wash trading in the near future, but this development is not yet confirmed. 

Despite this lack of regulatory oversight, wash trading is still a major problem in crypto, as it can artificially raise and lower asset prices, giving unethical traders an unfair market advantage, and often leading to significant losses for those traders and investors who play by the rules. 

Crypto wash trading is very similar to wash trading in traditional securities markets and is often used for “pump and dump” schemes, in which a trader artificially boosts the price of an asset via creating artificial market signals, including buying up large amounts of the asset. When the asset has reached a certain level, the trader will then sell the asset quickly, leading to a rapid price decline. 

It should be noted that in addition to traditional cryptocurrencies, wash trading can also happen in the case of tokens and other blockchain assets, particularly NFTs. For example, unscrupulous NFT creators have been known to mint NFTs, set a massive floor price, and then purchase their own NFT from a separate wallet to create the impression of value, even if the NFT is completely unknown and has little true value on the secondary market. 

The BTI Developed Algorithms to Analyze Trading Pairs on CeFi and DeFi Exchanges 

In order to prevent wash trading and other forms of market manipulation, the Blockchain Transparency Institute developed an algorithm that analyzed each trade on every pair on each of the exchanges they were monitoring. 

Wash trading occurs when a trader buys and sells the same asset simultaneously (or in rapid succession) in order to create a trail of artificial market activity.

This algorithm helped exchanges and consumers understand the true volume of exchanges by subtracting any wash trades or other artificial activity from the exchange’s reported traded volume. 

BTI Also Rated Crypto Data Websites 

In addition to creating algorithms to analyze exchange pairs, the Blockchain Transparency Institute also ranked various cryptocurrency data providers based on the accuracy of the pricing data they provided. 

Oracles Can Prevent and Track Wash Trading 

While non-profit watchdogs are a great way to help identify fraud and market manipulation among crypto exchanges after the fact, the usage of oracles, third-party data providers which interface with blockchain protocols, can be a highly effective way to prevent market manipulation as it’s happening. By providing external price data to exchanges, oracles can help prevent manipulation by giving exchanges the data they need to activate “guardrail” protocols that can temporarily halt trading until asset prices stabilize. 

However, oracles themselves can also be vulnerable to hacking and price manipulation. This is why decentralized oracles, which collect data (such as crypto asset prices) from multiple sources are ideal. Decentralized oracles, like blockchains themselves, generally use independent nodes which vote on the accuracy of the data provided in order to reach consensus. However, not all decentralized oracles are the same; they often vary significantly based on factors such as speed and accuracy.

SupraOracles is Poised to Provide Fast, Accurate, and Secure Data to Exchanges

SupraOracles is a novel and innovative oracle solution that uses a novel node architecture of nested Tribes and Clans in order to create a truly randomized and highly decentralized consensus process. Combined with cutting-edge cryptography, SupraOracles’ protocol helps to ensure that data is not manipulated or corrupted, which can help crypto exchanges, yield farming operations, crypto lending services, NFT marketplaces, DeFi insurance protocols, and other products to get the fast, accurate data they need to thrive. 

References

  1. Heal, J. (2019, Apr.) Blockchain Transparency Institute launches self-regulatory initiative to help reduce wash trading. Coin Rivet. 
  2. Chandrasekera, S. (2021, Sept.) Cryptocurrency May Soon Be Subject To Wash Sale Rules. Forbes. 
  3. Chen, J. (2021, Apr.) Wash Trading. Investopedia. 

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