With price volatility, undoubtedly, comes price manipulation. Manipulation is mostly executed on centralized exchanges using “pump-and-dumps” and “sell walls” which drastically change the market price of a coin or token in a small period of time. This can be especially easy with coins that have overall less volume and liquidity.

Within the metrics of market manipulation, we can also see exchanges faking volume to snag the interest of potential investors and new users.

We also have a new metric to add to our manipulation equation. When buyers are able to capitalize on differences in prices between markets, this is known as arbitrage. Arbitrage is the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset. People take advantage of this within crypto almost every single day and spreadsheets have been created to update these price differences accordingly.

How Can We Solve These Discrepancies?

A ERC20 token is realized through its smart contract operating on the Ethereum network.

Bancor capitalized on Ethereum’s smart contract capabilities to create built-in, automated market makers. Bancor achieves instant liquidity, by creating specialized smart contracts, called smart tokens, for every token pair that holds a reserve of each token. The smart contract sets the exchange rate based on how many tokens it has in its reserves.

In layman’s term this is how the exchange works:

Receive a quote → send token A → Bancor smart contract → receive token B in the same transaction.

More on this https://medium.com/@REGA/the-good-the-smart-and-the-liquid-how-bancor-protocol-works-9f92d34eed89

This essentially solves certain market manipulation points explained above. This model also transparently shows you the lowest price available of the current asset, free of any volume manipulation.

How Does This Compare To Other Decentralized Exchanges?

With recent news of manipulation, fake volume, and centralized exchanges being hacked, the move to decentralized exchanges has been evident. More members of the community have called for greater transparency and fairness, and many have heeded this call.

However, not all DEX’s work in the same fashion as Bancor.

Many other DEX’s solve certain issues in very different ways. IDEX’s decentralized aspect is the deposit/withdrawal of funds while the actual trading is completely centralized as every order goes through their service before being recorded on the blockchain.

Kyber Network’s liquidity, for instance, is derived from reserve managers, which are funds operated by large whales that bought cheaper on centralized exchanges like Bitfinex or Binance, and sell for more to Kyber Network’s customer base.

Conclusion

As we can see, there are many different ways to attack certain aspects of trading to reach a fair and decentralized trading mechanism.

It’s clear that for the community to have fair pricing mechanism for assets, bad actors and enablers must be left behind and replaced by newer, more equitable exchanges.

Check out Bancor