Tips on Appraising a Chinese Crypto Exchange’s Strength
The shutdown of crypto exchange FCoin shocked the crypto world as the estimated number of potential victims is more than 2000, and the loss per capita exceeds 25 bitcoins.
In fact, users can scan the capital reserve of the crypto exchange from the balance on the chain of all the addresses of the exchange.
According to the statistics of Chain.info, as of February 19, the crypto exchange with the most BTC balance on the chain was Coinbase, reaching about 96.81 BTCs, far higher than the others. In addition, Huobi and Binance’s balance reached 378700 BTCs and 250500 BTCs respectively, as Bitfinex, OKEx, Bitstamp, Kraken and Bittrex’s BTC balance also exceeded 100000.
Further combined with the trading volume of nearly 24 hours on February 20, Binance has the highest daily BTC spot trading volume, which has reached nearly $1.067 billion, then Coinbase, whose volume has reached $236 million, and the volume of Bitfinex, Kraken and Bitstamp have also broken through the threshold of $100 million.
If the BTC balance on the exchange chain is converted according to the closing price on February 19, and then comparing the result with the daily BTC spot trading volume, it can be seen that the BTC balance on the exchange chain is more than twice of the daily BTC spot trading volume, which means that even if these exchanges take the same amount of futures trading volume into consideration, the capital reserve on the chain is still enough to cover.
In addition to observing the capital reserve of the exchange from the comparison of the balance and trading volume on the chain, a more direct method is to analyze the scale of investor protection fund (SAFU) set up by the exchange. According to the limited data, in the announcement on the destruction of platform coins, Huobi and gate.io clearly informed investors that the scale of the protection fund was 50075600 HT and 44747100 GT respectively, which were equivalent to $240 million and $28379200 respectively according to the closing price on February 19, accounting for 6.62% and 9.27% of the BTC balance on the two exchange chains, but both exceeded the 24-hour BTC standard spot delivery.
There are not many crypto exchanges that set up SAFU as most of their capital scale only accounts for a small part of the asset scale. The exchange usually sets the limit on the use of SAFU, and the total value of the fund also depends on the value of its platform token.
The price of platform token is considered to be one of the important reference indicators to measure the operating capacity of a crypto exchange, but the market’s valuation of an exchange may be higher than its actual operating capacity.
On February 10, OKEx took the lead in announcing that it would burn the unissued 700 million OKB, its platform token, which had risen 46% by 11:00 on February 11.
If the result of total annual destruction amount divided by annual destruction amount as the profit ratio of the platform token in 2019, that is, how much is the revenue equivalent to the exchange in the whole or partial range of each platform token destroyed in 2019, and compared with the current currency price of the platform token, it can be found that most of the platform currencies in the statistical range is higher than that of the destruction platform in 2019. That is to say, the profit ratio of the six platform token is higher than the operating capacity (revenue) of the crypto exchange in 2019.