Ranking Stellar Assets Fairly by NiceTrade nicetrade Follow Apr 10 · 3 min read

Ranking assets in a way that is objectively fair has always been a challenge for decentralized exchanges. There are plenty of assets with honest trading behavior. But there are also low-quality assets that try to fake their way to the top. How do you punish these low-quality assets that game the rankings by manipulating their price and trading volumes?

Traditionally the default ranking system for most exchanges are either manually chosen or based on trading volume. In the spirit of decentralization, our goal at NiceTrade is to provide a completely automated and fair ranking mechanism that applies to all assets without processes that could apply favoritism or biases.

The most common way used by Stellar assets to game their ranking is by wash trading. If the bad actors know what they’re doing, this can be done easily with no costs or risks. They setup their order book with a high spread (e.g. 20+%) to deter other traders from trying to profit at their expense. It effectively becomes a closed market just for the bad actor. Then with two or more Stellar accounts they could freely match their own bids and asks at whatever price points and quantities they want. For example, they could easily spoof +50% price gain with 1M XLMtrading volume.

To this end, NiceTrade has implemented a new ranking mechanism for Stellar assets based on historical liquidity, which provides much more protection against manipulation. As we mentioned, rankings based on price and volume can be gamed without risk to the bad actors. To game liquidity on the other hand, they need to maintain a narrow spread and depth for their asset. This means they are now required to stake a significant amount of their own XLM into the orderbooks. And because of the low spread requirement, other traders are more tempted to participate, which makes it much harder for the bad actor to fake eye-catching upward price movements without paying off other traders. In other words, it becomes much more of an open and free market.

With this liquidity requirement, there is a lot more to lose for the bad actor, especially since they have to maintain it for a long period of time. While this mechanism is not perfect and won’t stop all instances of manipulation, it significantly raises the quality bar for Stellar assets, and it forces assets that want to climb the ranking into good behavior.

To produce our liquidity score, NiceTrade samples each Stellar asset over time to measure their liquidity depth against a preset benchmark. Each asset’s current score is computed based on a time weighted average of historical liquidity. Therefore to achieve a high score, an asset must maintain their high liquidity for a set time.

Knowledgeable traders also know that historical liquidity by itself is also a very important piece of info in classifying the risk of an asset. A lower rating means it’s more costly to enter and exit trades with this asset. As a trader, it gives you less flexibility in when you can sell.

As a companion to NiceTrade’s new ranking system, we built a new Markets Overview page:

As part of this update, we have also polished the user interface of our exchange and wallet based on user feedback.

NiceTrade is a secure multi-account trading terminal that is in heavy development.