Binance Acquisition of CoinMarketCap: Centralization in Action

Even with all that is going on with the 2020 global health and economic crisis, this year still brought other major events to the crypto community. One of these was the deal that ended on March 31 and formalized Binance’s acquisition of CoinMarketCap. The undisclosed price of this purchase was said to be 400 million dollars. The crypto community was caught off guard by the big crypto news, with many left wondering what exactly happened. Binance, one of the largest cryptocurrency exchanges, has dominated the space in recent years and will now take control of the most referenced price tracking source in the cryptocurrency industry. CoinMarketCap is also widely used for its trade ranking metrics and is often the first source for beginners in cryptocurrency trading. Due to these factors, the announcement raised concerns about conflict of interest and questions about CMC’s objectivity for the future.

Humble origins

According to CoinMarketCap founder Brandon Chez, he opened the website while living in Long Island City, Queens, in 2013. He was in love with cryptocurrencies but found himself frustrated that there was no way to measure the value of altcoins. compared to the value of Bitcoin. Brandon decided that the best way to measure cryptocurrencies and present them in a comparative way would be via a stock metric market cap, commonly called “market cap.” He used his engineering skills to design a simple interface and collect the coin data presented in his table. For four years he worked only on the website. Later, around 2017, his team started growing rapidly along with the expanding crypto ecosystem. Brandon Chez kept his character out of the public eye, opening just a little bit in an interview for the CoinMarketCap blog. Committed to neutrality, him he turned down a number of investors with the aim of preserving the integrity of the site and avoiding external pressures. By 2020, CoinMarketCap has claimed, quite legitimately, to be “the most referenced and trusted source for comparing thousands of crypto entities in the rapidly growing cryptocurrency space by users, institutions and the media.” User feedback was always accepted and the team continued to work to improve the accuracy of the metrics. Its mission was to present people with “accurate, timely and unbiased information, allowing each user to draw their own data-informed conclusions.”

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Around the time that the CoinMarketCap story was taking shape, the future founder of Binance, Changpeng “CZ” Zhao, lived in Shanghai and was interested in Bitcoin. He joined Blockchain.info as head of development and spent eight months working closely with well-known Bitcoin evangelists such as Roger Ver and Ben Reeves. He also spent less than a year at OKCoin, a spot trading platform, as chief technology officer. After gaining more experience in the cryptocurrency industry, he began developing a plan for his own digital asset exchange that did not involve fiat currencies, thereby reducing the risk of regulatory complications. In July 2017, during an ICO boom, it relaunched $ 15 million in the bulk sale of Binance’s 200 million tokens. Since this initial coin offering, BNB’s Binance token has risen from around 10 cents to $ 13, giving it a market cap of $ 1.3 billion. With Zhao owning the largest stake in coins, he has become one of the most famous crypto billionaires. He even appeared on Forbes in February 2019 with an exclusive interview on his rags to riches story.

Consequences of the acquisition

Not many people have heard of Binance Info’s price tracking service. Its biggest competitor CoinMarketCap has been criticized for being mysterious with its founder avoiding advertising. Binance founder CZ, in comparison, is very public, having very quickly become an opinion leader for a large chunk of the crypto community. However, Binance’s price tracking service didn’t offer any features that CoinMarketCap didn’t already have, save for the very outspoken CEO and struggled to take off.

Sensing an opportunity, Zhao bought CoinMarketCap in what is Binance’s largest purchase so far, according to Zhao himself. He explained that he had pursued CMC founder Brandon Chez for years and now Chez is finally here resign to “focus on his family”. At the moment, Zhao stressed that the acquisition will not change CoinMarketCap’s independence: “Binance has no bearing on CoinMarketCap rankings. CoinMarketCap is committed to providing the most accurate, timely, and quality cryptocurrency data in the industry, while benefiting from Binance’s experience, resources and scale. “

Updated metrics

Now, two months later, we can see that this wasn’t exactly the truth. Binance has inevitably climbed to the top of the CoinMarketCap exchange rankings. Before the purchase, CMC’s liquidity ranking was considered the most reliable as it was designed to avoid the calculation of inflated volumes. At the time of the purchase announcement, HitBTC lost the top spot in the liquidity metric for the first time since this feature was implemented. Slowly but surely the liquidity rankings began to change, with some exchanges coming out on top and former leaders like HitBTC dropping as Binance showed rapid growth in its numbers. The new liquidity score ranks all cryptocurrency markets with a score from 0 to 1,000 to make it easier for users to understand, however, that doesn’t explain why the final ranking changed so drastically after these changes were implemented.

Additionally, a new metric called “Web Traffic Factor” was introduced in a May 13 blog post from CoinMarketCap: “In most cases, with crypto is a retail-driven market, for an exchange to have high volumes. , it must have a number of retail merchants (ie buyers and sellers). Instead of asking exchanges to send their user numbers, a good intermediate proxy will be web traffic, “the site team wrote. As of now, the introduction of this metric has put Binance at the top with a score of 1000 out of a possible 1000. Interestingly, in an interview last year, CoinMarketCap chief strategy officer Carylyne Chan, now its interim CEO, said, “We’ve seen other people doing things like you said, traffic [to verify exchanges are legitimate] but people trade using API keys, that’s why web traffic is not a good indicator. “However, Chan assured the public that CoinMarketCap is an independent entity and is not influenced by the interests of its CEO.” We don’t update algorithms or rankings to fit anyone’s agenda, this is completely contrary to the history and value of CoinMarketCap, “he said.

This update has caused a wave of justified criticism from community members, including competing exchange platforms. Huobi Vice President Clara Sun tweeted, “Strange that CoinMarketCap ranks exchanges without considering the% of total market capitalization of coins handled by exchanges. This is data you cannot fake.” Alysa Xu, OKEx chief strategy officer, also called the site for her motivation. . “Fairness and justice are the basis of all rankings. CMC is dead and we cry together tonight,“It reads in his post on the Chinese microblogging Weibo blog.” In the mobile Internet era in 2020, ranking with web parameters the list is ignorant or shameless, “he added. Regular users made similar statements in the comments to the CZ Twitter ad, mourning the loss of a great platform and promoting its alternatives like CoinGecko and Сoinpaprika. “In a sense, it is in our interest to continue to be neutral, transparent and independent. It won’t change much for CMC once the takeover takes place, ”Carylyne Chan said in a previous interview, yet now it seems that everything has changed.

Partiality and Bias

This turn of events is far from surprising. Everyone knew by the time the acquisition was announced that CoinMarketCap was about to lose all of its declared neutrality and independence. Those who were giving Binance the benefit of the doubt in preserving the legacy of the leading price monitoring service and keeping it trustworthy changed their tune once they saw the new perennial top player on the website: Binance itself.

This problem is more than just lost impartiality in CoinMarketCap, this is an attempt to dominate and centralize the cryptocurrency ecosystem in the hands of one company. It is very important that exchanges are included in the first places on data aggregation sites because it provides great visibility and influences the opinion of the public, attracting more and more new customers. Some exchanges pay for the top position in these rankings, others resort to wash trading to increase their volume. Here Binance surpassed them all, eliminating all middlemen and buying the site itself. This isn’t the only recent big move for the company – so far this year Binance has also acquired a DApp ranking evaluation platform DappReview, crypto exchanges like WazirX based in India, and launched their own mining pool.

While each acquisition can be explained as a booming business as it should, it’s starting to seem like Changpeng Zhao is trying to monopolize the industry, grabbing the biggest piece of the crypto pie he can. Its competitors are at a serious disadvantage compared to the power Binance has become and the wads of money Zhao can afford to invest in its plans. However, his actions run counter to Satoshi’s original decentralized view of a fundamentally impartial network. This is why the crypto community is losing faith in everything Binance and its CEO are doing, and users are ditching CoinMarketCap, developments that could have a lasting effect on Binance’s reputation as a whole.

Amy Day is an independent researcher