Why Trading Volume Figures Were Inflated for Years

For an extended period, aggregate reported trading volume in crypto bore little relationship to actual trading. Research published by several independent parties concluded that a large majority of reported volume on smaller venues was not genuine.

The mechanisms are worth understanding, because the incentives persist.

Why a venue would inflate volume

Ranking. Aggregator sites ordered exchanges by volume. Higher placement meant more traffic and more customers.

Listing revenue. Projects paid to list on venues that appeared significant.

Perceived liquidity. A venue appearing liquid attracts orders, which makes it more liquid, which is a genuine network effect worth manufacturing a starting position for.

How it was done

Wash trading. The venue, or accounts it controlled, traded with itself. Costless if the venue also sets the fees.

Incentive programmes. Paying traders more in rebates than the fees charged, which makes round-trip trading profitable and generates volume that exists only because of the subsidy.

Reporting inflation. Simply reporting figures larger than actual activity.

How it was detected

Researchers applied statistical tests that genuine trading data passes and fabricated data typically fails.

Trade size distribution. Real trading produces characteristic clustering around round numbers and a particular distribution of sizes. Generated data frequently does not.

First-digit analysis. Naturally occurring numerical data follows a known distribution of leading digits. Fabricated figures often deviate.

Volume against observable inputs. Web traffic, order book depth and on-chain deposit flows all correlate with genuine volume. Venues reporting enormous volume with minimal traffic and thin books stood out clearly.

What changed

Aggregators introduced adjusted metrics that weight venues by liquidity measures rather than reported volume, and several began excluding the worst offenders.

Regulation helped more. Venues operating under a licence face reporting obligations and supervision, which makes fabrication a regulatory offence rather than a marketing decision.

The effect is that the largest regulated venues now report figures that survive scrutiny, while the long tail remains unreliable.

What this means for anyone using volume data

Use depth, not volume. Order book depth within a percentage of mid is directly observable and considerably harder to fake than a reported total.

Prefer venue-level figures from regulated platforms. A licensed venue reporting its own volume, such as Collect and Exchange, is a primary source with a supervisor attached.

Treat aggregate sector volume with suspicion. The figure sums across venues of very different reliability.

Check the methodology note. Reputable aggregators publish how they adjust. If a figure is quoted with no method, it is the raw number.

The general lesson

Any metric that determines ranking will be optimised by those being ranked. This is not specific to crypto, and it is a reason to prefer metrics that are expensive to manufacture over metrics that are cheap to report.

Depth costs capital to provide. Volume costs a database entry.