Yesterday, the stable currency BitUSD showed an amazing premium transaction. According to CoinMarketCap, on the OpenLedger trading platform, lucky traders were able to sell BitUSD for $34, which is 3400% higher than the previous one.
(BitUSD price curve, image source: CoinMarketCap )
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But BitUSD shouldn't have that high transaction price. As a stable currency, it should be stable and can cushion market fluctuations.
For traders, this is not a problem, they did not spend $34 to buy BitUSD. However, any aggregator and trading robot that references BitUSD prices on CoinMarketCap (BitUSD primarily trades on decentralized exchanges) may find that they are making decisions based on problematic pricing data.
Bitshares, the company behind BitUSD, hired a "content manager", Ross Walker, who said the problem was not caused by market manipulation or the fundamentals of BitUSD's own chaos, but by CoinMarketCap.
Walker explained that CoinMarketCap is introducing an update to its terms to increase the transparency of its cryptocurrency price index. Typically, when a cryptocurrency does not have a dollar market, CoinMarketCap will derive the dollar price of the asset from the most closely related or "paired" dollar trading assets associated with it.
However, Walker said that with the update of CoinMarketCap, it excluded some of the more liquid BitUSD trading pairs in the index. This means that the “outliers” of low liquidity affect the assessment of the index, “this leads to a significant error in the price of BitUSD.”
This seems to be a credible explanation. CoinMarketCap confirmed in the email that it did exclude some BitUSD market data, saying that Bitshares failed to meet some of the transparency requirements required for the second phase of the update. Other indices that list relevant data show that the BitUSD against the US dollar is almost 1:1.
But CoinMarketCap also said that it had ruled out the data as early as June, but it has only started since Monday.
In the end what happened? Colin Platt, a blockchain consultant who specializes in cryptocurrency market operations, expressed his views.
His findings are surprising.
The following is the price of BitUSD given by CoinMarketCap on other currencies in OpenLedger. The total transaction volume of the first two trading pairs adds up to $34,000, which is 99% of BitUSD's trading volume, which means that CoinMarketCap's algorithm will mainly refer to these two trading pairs when measuring the price of BitUSD:
(BitUSD trading pair, image source: CoinMarketCap )
However, the second trade pair was manually excluded, leaving only the first trade pair (SCR/BitUSD). It is this transaction pair that caused a high premium of $34 for BitUSD.
Platt did some research and found that only one entity was trading BitUSD with SCR – "marketcorrector01", which has been trading BitUSD with SCR since Sunday, suggesting it could be a robot.
Most of the time, the robot buys and sells SCR for $0.025 and pays with BitUSD. But occasionally, the robot will sell it to "t3ran13" and "mesan88" at a lower price (about $0.0004):
(BitUSD transaction record, image source: Bitshares Scan)
Therefore, Platt believes that CoinMarketCap found that the price of SCR/BitUSD suddenly fell while collecting BitUSD price data, and regarded it as a stronger BitUSD. The index incorrectly reported a sharp rise in the price of BitUSD due to the lack of more accurate indicators.
CoinMarketCap seems to confirm this in the mail. A spokesperson said that exchange rate fluctuations in “some market transactions” caused pricing errors. What he said might be the BitUSD/SCR transaction pair.
But there are still many doubts that have not been answered. Is the weird operation of marketcorrector01 another shocking market manipulation? “t3ran13” and “mesan88” buy SCR at low prices and sell them on the market. Are they professional arbitrageurs?
"For the sake of profit," Platt said. "It can be a little more."
To sum up: Since CoinMarketCap ignores the vital liquidity indicators, the price of BitUSD seems to come entirely from robot-driven autonomous trading, which creates an unrealistic dollar value.