Research into claims that Binance Smart Chain has been reporting fake volumes has revealed some interesting findings.

Following several accusations of fake volumes associated with Binance Smart Chain, a number of industry researchers including Andrew Kong [@Rewkang] have taken a deep dive into the figures.

Its most popular automated market maker, PancakeSwap, has been posting some huge volumes recently. This too came under the spotlight.

FTX derivatives exchange founder Sam Bankman-Fried (SBF) was also involved in the research. SBF stated that he believes most volumes reported are real.

Fake volume is a long-running concern in crypto.When we looked into it:1) there's lots of fake volume2) there's lots of real volume3) it's not always obvious on priorsMy prior is that BSC would be majority real volume, but not confident; good to see real digging! https://t.co/HMUY4vx956— SBF (@SBF_Alameda) March 15, 2021

Binance Smart Chain Volumes: Real or Fake?

The researcher stated that the most commonly cited questionable activity they saw was that of unique addresses. 1inch Exchange’s CHI gas token deployment was primarily attributed to this sudden uptick in unique addresses. So, when BSCscan changed its algorithm to exclude addresses generated by the CHI contract, the figures normalized, he added.

He added that the volumes on PancakeSwap have also been highly questionable recently;

“The skepticism towards BSC is partially due to high volumes and TVL of PancakeSwap (PCS) seemingly coming from nowhere combined w/ Asian exchanges having a reputation of wash trading,”

Wash trading is where traders buy and sell the tokens at the same time in order to manipulate the markets. This is a lot harder to do on a decentralized exchange than a centralized one, he added. Plus, data on the former is openly available on the public blockchain.

Kong stated that in order to wash trade, Binance would need to pay fees instead of rebating or waiving them. This could work out at up to $730 million annualized.  When identifying exchanges for fake volumes, comparing liquidity profiles to volumes raises alarm bells for those with low liquidity.

For PancakeSwap the total value locked (TVL) increased along with volume which indicates genuine figures. He also introduced a concept called DEX AMM velocity. This is essentially a ratio of transaction volume vs. TVL, which tracks the speed of turnover of AMM capital.

Using this he found that PancakeSwap had comparable figures to Uniswap recently and could even exceed it for arbitrage trading due to more favorable transaction prices:

“Given that a tx on Pancakeswap on BSC is 100x cheaper than a tx on Uniswap (and PCS tx fee is 20 bps vs 30bps), you would expect significantly more arbitrage opportunity as well,”

Little Evidence

Finally, the research looked into social activity as a measure of engagement. It concluded that there was little evidence to suggest volumes were fake;

“Overall, our findings did not find much evidence to substantiate the narrative of largely fake activity + bots. Rather, it points to real fast-growing activity from a newer less sophisticated retail audience combined with variable project quality,”
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