Dear Sp8de Investors,
Introduction
As promised before the end of March, 2018 the SPX token has been listed on a cryptocurrency exchange – in fact on two – IDEX and EtherDelta. The trading volumes are relatively mild and the price of the token is comparatively low. The order book is unbalanced – the ask side is much thicker and deeper than the bid side indicating large sell pressure while having very few to no buyers. Recently, we have listed SPX on KKCoin – a central limit order book exchange with UI, security, and functionality of Binance; nonetheless much smaller. We have began making markets there aimed at providing the necessary liquidity and small spreads for orderly trading. We encourage all our investors and SPX traders to move to KKCoin and away from IDEX and EtherDelta in order to contribute to the liquidity of the token. We are also working on listing SPX on CoinMarketCap.
Nonetheless, we believe that this kind of trading on these venues does not provide price discovery and incorrectly reflects the actual market price SPX as these exchanges are relatively illiquid caused by small number of traders who are also trading in much smaller volumes than at, for example, the top five cryptocurrency exchanges.
Although the following text can be considered only a condensed summary of the preface of a paper on market manipulation, we would like to avoid boring the reader with the technical details and issues related to electronic trading that in most cases, to be fully and well understood, require one or multiple Ph.D.s in physics, mathematics, and/or (financial) engineering.
Cryptocurrency Electronic Markets
Cryptocurrency markets have been shown to be manipulated in similar ways to equity markets before becoming heavily regulated, including but not limited to layering, spoofing, wash trading, pump and dump schemes, quote stuffing, simulated flash crashes and so forth. Trading algorithms are specifically designed to track the dynamics of the market behavior through the order book structure and accordingly place, execute, and omit orders so as to trade against less sophisticated and informed retail investors. Other trading bots are tuned to simulate volumes (some incorrectly call them market-makers or liquidity providers, which in the classical sense they are not) where at their most basic form place limit orders on one side of the book and hit them with other orders placed by the same trader/algorithm. Finally, the famous “pump-and-dump” schemes that have been observed even in regulated markets during the late 90’s when the dot-com stocks exhibited largely similar trading behavior to today’s cryptoassets (one of the many exceptions being high frequency trading). In essence, the architecture of the trading algo aims to place minimal order sizes on the bid side far away from each other in terms of price step and subsequently at a relatively fast pace fill these orders causing immense positive changes in the price of the assets associated with relatively low volumes. This technique (in combination with other obscure tactics) has been successfully utilized for decades to attract inexperienced traders and investors to “jump” (begin buying) particular asset seeing 4000% returns believing that other relatively more informed investors are buying. Naturally, often large asset holders (founders even) stay on the other side and once there is enough depth of the book they place aggressive sell market orders draining the liquidity from the book and dropping the price.
Conclusion
These techniques, although being as legal as unethical are viewed with repugnance by the Sp8de team. What the Sp8de team strives towards is sustained organic growth – volumes coinciding with buy orders placed by investors who believe in the progress and perspectives of the project. We purposefully avoid exchanges where the aforementioned are not simply an exception but rather everyday reality. In this light, we are currently negotiating with a number of reputable cryptocurrency exchanges where investors trade confidently across projects with views alike those at Sp8de.
