In a recent tweet, Binance (BNB) CEO Changpeng Zhao (CZ) may have inadvertently admitted his involvement in the management of the recently acquired CoinMarketCap (CMC).
Following in Elon Musk’s footsteps?
Zhao’s tweet from May 14 seemingly admits his involvement in managing CMC:
If he is not involved in the managerial decisions of CMC, including the configuration of various metrics, then it raises the question — why is the CEO of Binance making public statements that suggest otherwise? At the very least, this resembles public pressure on CMC’s management.
The situation is reminiscent of a Twitter-enabled gaffe by Elon Musk, in which careless tweeting got the entrepreneur into trouble with the SEC. Binance’s undisclosed and presumably off-shore jurisdiction may shield from the regulators; however, it will not make it immune to the reputational damage.
Conflict of interest
Binance’s acquisition of CMC raised some eyebrows from the outset. Many saw high potential for conflict of interest. But Binance assured the community that the two business entities would remain independent of each other:
“No Binance employee, including CZ, has control over CoinMarketCap's ranking algorithms or listing processes. Cryptoassets that wish to be listed on CoinMarketCap should follow the guidelines in our listing policy and will be fairly and independently evaluated on their merits.”
Binance competitors respond
Many have called this independence into question in light of the recent reshuffling of exchange ranking metrics, which put Binance in the number one position. It led to the OkEx chief strategy officer Alysa Xu proclaiming CMC rankings “dead.”
Clay Collins, CEO of CMC competitor Nomics, told Cointelegraph that Binance also tops Nomics’ own exchange index, but he still believes the latest changes to the CMC metrics could backfire against Binance in the long term:
“Binance could find itself under much more scrutiny if CoinMarketCap was ever found to misrepresent financial data in a manner that (1) directly aided Binance and hurt traders, or (2) leveraged CoinMarketCap's position to help Binance gain an unfair competitive advantage over other exchanges, especially if traders were also affected. Even if the misrepresentation were the result of a bug.”
Ciara Sun, head of global markets at Huobi Group, told Cointelegraph that CZ’s tweet seems to insinuate his involvement:
“CZ's tweet stating that they will ‘continue to iterate’ on CMC's ranking system certainly seems to insinuate his involvement but I'll leave that up to the community to interpret.”
Sun believes that CMC’s acquisition by Binance “compromises its neutrality,” further noting that an exchange that was hacked for 7,000 Bitcoins (BTC) should never receive a perfect score:
“In addition to the limitations of metrics like web traffic, CMC's ranking system does not weigh other crucial factors like an exchange's security, compliance and licensing, and total assets under management (AUM). Any exchange that was hacked for 7,000 BTC should never receive a perfect score. Compliance is perhaps one of the most important indicators of a trustworthy exchange. And AUM says much more about an exchange than web traffic. (Huobi is currently managing more than 5% of the total coin market cap.) I'd even propose community voting as a metric in lieu of a clear framework for assessing real trading volume.”
Lennix Lai, director of financial markets of OKEx, also told Cointelegraph that he finds the new ranking “biased”:
“Website traffic is known to be one of the most biased parameters to rank an exchange - considering the metric would be easily distorted by mobile and VPN-directed traffic. And that’s why most data analytics sites pivoted to a more scientific, robust approach via ranking exchanges by a composite score on volume, liquidity and market depth. It’s skeptical to me that CMC who promoted its data and transparency via its DATA initiatives yet right now backpedaling with a de-facto biased parameter.”
In a statement to Cointelegrpah, CZ reaffirmed that no exchange will be manually pigeonholed into the first spot:
“At no time will Binance.com (or any other exchange) be ‘manually’ fixed into a position, ever. We will always strive to use a combination of metrics to achieve the most trusted data and rankings for users. And if Binance.com ranks first, it ranks first, if it doesn’t, it doesn’t. There is no manual tweaking of any ordering for any exchange.”
Although the crypto industry often operates outside of typical business norms, reputation still matters.