A step to step guide to assess the quality of cryptocurrency Exchanges!
As a crypto researcher, I always wonder how can we come to know which cryptocurrency Exchanges have better quality and thus, are safer to use. is it really enough to look at the Exchange’s Market volume and decide whether they are good or not! or are there other metrics that can help us better evaluate the quality of financial crypto services.
In this short article, I try to share my experiences, as part of our latest-but-still-open research project, in Coiniran where we developed an innovative methodology to analyse the quality of Iran-based Cryptocurrency Exchanges.
At first glance, one may say that Exchanges with higher trading volumes would definitely have better infrastructures and thus are more reliable for trading activities. But trading volumes and liquidity can be easily manipulated. Regarding that, we tried to develop other metrics to assess crypto Exchanges based on the quality and trust in their services.
After hundreds of hours of researching and collecting different insights, we came to develop 8 independent metrics which we believed are important when the quality of crypto Exchanges matter. Here you can see the main metrics we deployed to evaluate the quality of Cryptocurrency Exchanges.
The first metric is the Legal compatibility of Exchanges. It is important to know how compatible Exchanges are with legal considerations. The second metric is the Security of crypto Exchanges. Security breaches on crypto Exchanges are alarmingly common. Exchanges are key targets for hacking attacks. so we find it really important to take into account the level of security, Exchanges provide for their users. The third metric analyzes the quality of the API of Exchanges. we call it Data Provision. An Application Programming Interface (API) is a computing interface that defines interactions between multiple software intermediaries. For crypto trading, an API allows you to connect with your exchange and access real-time market data.
The fourth and probably the most important metric is the Market quality of crypto Exchanges. This metric provides a representative picture of what trading looks like in crypto Exchanges. The fifth is the quality of surveillance providers which Exchanges use to monitor suspicious activities. it is vital to take a good response to the malicious activities of bad actors. Moreover, some Exchanges may have some big companies as their financial investors. Our next metric analyses the quality of Exchange’s investors and assumes that Exchanges with big companies in behind have more financial resources to develop and improve their crypto products.
The seventh metric studies the quality of the Exchange’s executive management team to clarify how well an Exchange is managing. and finally, our last metric is to evaluate the quality of user experience with Exchange’s platforms. The User experience here is a user emotion and attitudes on working with one Exchange’s platform. It generally includes users’ perceptions of systems aspects such as utility, ease of use, and efficiency.
To sum up, it is important to make sure that all metrics we discussed are studied independently. I believe that no one metric, like volume or liquidity, can qualify one exchange. all these eight metrics have their own sub metrics. please note that it is not easy to evaluate the quality of centralised cryptocurrency Exchanges. but we think considering all these insights would help you to identify the best venues for your risk appetites.
If you are interested to know more about what we did in our Crypto Exchange Benchmark please consider reading our English report here in CoinIran.
