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Polkadot the Unlikely Victim of Centralized Exchanges

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The billion-dollar cryptocurrency space is no stranger to hype, as it is considered a factor that increases crypto prices. While this may be, hype generated from major centralized crypto exchanges may actually be creating more harm than good for users involved with certain community-based projects.

For example, Web3 Foundation’s flagship project Polkadot aims to enable a decentralized web where users, rather than internet monopolies, are in control of applications, services and institutions. The project was started in 2017 by some leading names in the blockchain industry, including Ethereum co-founder Gavin Wood. 

On July 26, Wood published a Polkadot blog post stating that the first vote on the Polkadot network had taken place to determine the final “meaning” of Polkadot’s sought after DOT token. The DOT token is used for governance, staking and bonding on the Polkadot network. After two weeks of voting, the community decided on a “redenomination” of the DOT token to take place on Aug. 21. 

The redenomination is a tactic similar to a stock split in traditional equity markets. In this case, all DOT tokens exchanged for 100 new DOT tokens would be at a ratio of 1:100. According to Gavin’s post, the move “would result in a much more ergonomic DOT value.”

While the redenomination of the DOT token was clearly explained, some leading centralized exchanges like Binance and Kraken listed Polkadot’s DOT token on Aug. 18, three days before the agreed-upon redenomination. 

Binance has not returned a request for statement from Cointelegraph, while Kraken denied to comment on the situation.

Confusion puts the community at risk

Shortly after Binance and Kraken listed the DOT token, Wood fired out a series of tweets expressing his concern for the community as a result of the impulsive actions taken by the two exchanges.

As Wood noted, the actions taken by the exchanges have put the community at risk. While confusion among traders, speculators and community members has become apparent on CryptoTwitter. A post on the online image-sharing platform Imgur shows how the DOT price immediately shot up 10 times more than its determined value during the first trading hour.

Yet, because of the DOT redenomination period, uniformed community members who thought they were buying the DOT tokens at a very low rate were actually buying them at a much higher price. This will become evident on Aug. 21, Polkadot’s denomination day.

Protecting the community moving forward

In the meantime, the Polkadot community has taken several actions to warn users against buying the DOT tokens currently listed on Binance and Kraken. For example, the Web3 Foundation sent an email to Polkadot members on Aug. 18 explaining the DOT denomination and how the redenomination will take place. The email also states:

“Unfortunately, some unscrupulous exchanges chose to enact the redenomination on August 18 rather than August 21, the Denomination Day that was agreed upon by the Polkadot community.”

The email further notes that the actions taken by Binance and Kraken were “irresponsible” and “deceptive,” and that they had not only put Polkadot stakeholders at risk but exposed themselves to liability.

While Kraken chose not to discuss the issue directly with Cointelegraph, Jesse Powell, co-founder and CEO of Kraken, sent out a tweet on Aug. 18 sharing his thoughts on the matter:

Twitter

Not the first time

Regardless of the situation between the Polkadot community and the two exchanges, according to some commentators, this situation illustrates an even larger point: Major crypto exchanges may be toxic for community-based projects. 

Mati Greenspan, a crypto market analyst and founder of market analysis platform Quantum Economics, told Cointelegraph that he isn’t surprised by the actions taken by Kraken and Binance. “Exchanges and brokers are businesses at the end of the day and they’re compelled to do whatever is most profitable. This isn’t a uniquely crypto problem either,” he said. Greenspan elaborated that if the decentralized web is going to move forward, it must proceed without the use of centralized exchanges. 

In a recent interview, Daniel Wang, CEO and founder of the Loopring decentralized exchange and protocol, made a similar remark: “Risks include listing some bad tokens and bad trading behaviors like pump and dumps. So this kind of behavior cannot be solved by any technical solution. It’s a human behavior. And the other one includes market and information manipulation.”

Unfortunately, as Polkadot mentioned in its recent email to community members, there is little that a community-based project can do to counter what was done by the exchanges. “However, since Polkadot is now decentralized and permissionless, we can do little against a determined third party,” the email stated.

Moreover, Galia Benartzi, co-founder of Bancor, a decentralized crypto exchange, told Cointelegraph that it’s difficult to build a new economic paradigm without a bridge from the existing one. However, Benartzi mentioned that while centralized exchanges and marketplaces may be the norm now, it’s unlikely the crypto space will continue to operate this way:

“Currently, centralized exchanges are still a fundamental piece of the digital asset puzzle, while new technologies and mindsets take root, build momentum, face challenges and iterate. But certainly the arch of technology shows us that gatekeeper rents can be effectively decentralized, or at least more widely distributed.”





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3 altcoins whose tweet volume spiked before a strong rally

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On Crypto Twitter, a surge of attention directed at a coin often comes in response to dramatic price action. Quite naturally, rallying assets attract the attention of traders and take over Twitter conversations, which can also create positive feedback loops that further prop up the momentum.

This is exactly what happened with some of the coins that saw a greater increase in average daily tweet volume this month, compared with the last. KuCoin Shares (KCS), which went up from $7.40 on July 4 to $14.20 on July 14, generated a staggering increase in average tweet volume, totaling more than 1,100% month-to-month.

Another big winner in terms of price, Axie Infinity (AXS), added 456% in tweet volume over the same period. In both cases, tweets mirrored the rallies’ dynamics, with the tweet volume curve closely following the price chart.

In other cases, however, the relationship can be reversed. Sometimes, the Twitter crowd picks up the news or emerging narratives that the wider market has yet to absorb, producing tweet volume spikes that come before price increases. Is there a way for traders to spot these dynamics early enough to gain an edge over the rest of the pack?

Data intelligence for early birds

Tweet volume is one of several metrics used to calculate the VORTECS™ score, an algorithmic indicator that compares complex patterns of market and social activity of an individual digital asset to years’ worth of historical data.

Exclusively available to Cointelegraph Markets Pro (CTMP) subscribers, the algorithm assesses parameters such as the market outlook, price movement, social sentiment and trading activity to generate a score that shows how suitable conditions of the observed combinations are for any coin at any given time.

On top of that, there is a dedicated space on the Markets Pro dashboard featuring assets that see abnormal tweet volume in real-time. Once they are alerted that something is brewing around a coin on Twitter, traders can be incentivized to take a closer look at the asset and make a judgment as to whether its price is likely to go up soon.

Here are three examples from the last thirty days where Twitter activity foreshadowed price action.

Crypto.com Coin

CRO’s Price vs VORTECS™ chart. Source: Cointelegraph Markets Pro

In the case of Crypto.com Coin (CRO), the source of Twitter users’ excitement is crystal clear: A few hours before the coin flashed on Markets Pro’s Unusual Twitter Volume box (red circle in the chart), it emerged that CRO became the first digital asset platform to partner with the Ultimate Fighting Championship, or UFC. The announcement was also delivered to Markets Pro users seconds after the original source published it, thanks to the platform’s instantaneous NewsQuakes™ functionality.

Unsurprisingly, the big news triggered a sprawling Twitter conversation. If traders had not been convinced by NewsQuake™ and coin’s rising VORTECS™ score, the skyrocketing tweet volume could be the final argument in favor of opening a CRO position. The coin had been valued at $0.113 when tweet volume peaked on July 8, and it kept climbing in the next four days, eventually hitting $0.132 before the price began to decline.

Quantstamp

QSP’s Price vs VORTECS™ chart. Source: Cointelegraph Markets Pro

Establishing what had triggered the surge of tweets referencing Quantstamp (QSP) around June 1 is less straightforward. One potential reason could be the launch of oneFIL, a stablecoin for the Filecoin community, around that time.

The protocol behind oneFIL is audited by Quantstamp. While QSP generates just a handful of Twitter mentions per day, on July 1 it got over 150 tweets, immediately putting it on the Markets Pro radar (red circle in the graph). While the peak tweet volume corresponded to the QSP price of $0.030, the coin pulled off a strong performance in the following days, reaching $0.034 on July 4, continuing to push further.

Flow Dapper Labs

FLOW’s Price vs VORTECS™ chart. Source: Cointelegraph Markets Pro

Flow Dapper Lab’s (FLOW’s) peak tweet volume came late on July 10 (red circle in the graph) in response to a highly successful week that the asset had, more than doubling its price from $9 to over $18.

A high VORTECS™ score that FLOW received some 50 hours earlier indicated that in the past, such rallies unfolded in several rounds and that historical precedent suggested a possibility of the second leg. Sure enough, the price kept climbing even after the wave of tweets began to recede, eventually hitting $21.20

These examples demonstrate that, while an onslaught of tweets alone is not always a harbinger of an impending rally, spotting abnormal Twitter activity early on can lead to a profitable trade. It can be especially useful when combined with other metrics and a robust understanding of the coin-specific context.

Disclaimer. Cointelegraph is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and charts are correct at the time of writing or as otherwise specified. Live-tested strategies are not recommendations. Consult your financial advisor before making financial decisions. Full terms and conditions.