原文：《A New Model for Assessing Crypto Asset Liquidity》by Conor Ryder, CFA
Author: ChinaDeFi
Market capitalization is one of the most commonly used indicators for legitimizing the value of cryptocurrencies. We often hear about a coin entering the top 10 by market capitalization, and a coin like BNB makes headlines after entering the top 5, solidifying its status as a mainstay in the crypto ecosystem. However, it only takes a quick look at the top 20 or 30 coins to realize that not all market caps are created equal. FTT was a top 20 coin before the crash, and LUNA was once in the top 10. While market cap is a rough estimate of a token's value, the value of an asset depends on its liquidity.
This is especially true when it comes to the liquidity crunch we are experiencing in the current bear market. As I will show in this article, market cap as a metric becomes particularly misleading when investors equate market cap with a token’s liquidity.
Why is a liquidity ranking system necessary?
Lack of risk management, or more specifically, lack of liquidity management, seems to be a recurring theme in the multiple crises we have seen this year. Whether it’s Celsius holding too much stETH that it cannot redeem, or FTX holding roughly half of its balance sheet on FTT, a token with little liquidity or use case.
A more thorough approach to valuing tokens is needed, and liquidity must become a metric for investors to properly assess the risk of their holdings in the future. Simply equating liquidity to market cap is not enough, as there are some large outliers.
I propose a liquidity ranking system to estimate the liquidity risk inherent in each major token. At a high level, the three criteria that determine the ranking are: volume, market depth, and spread. Combining these three metrics to get an average ranking gives us a comprehensive measure of each token's liquidity, and we can check how it compares to market cap to spot differences.
Here is the final result:
You should have spotted the outliers, and I will discuss them in more detail later in this article. Now, it is time to show you how the liquidity ranking is achieved at a granular level to introduce a more robust approach to liquidity management.
data
28 tokens are ranked by market cap, excluding stablecoins and wrapped tokens. For volume and market depth, the data aggregates all active USD, BUSD, USDT, and USDC-denominated pairs on the 16 most liquid centralized exchanges. This covers the majority of market activity.
For spreads, only data from Binance was used, which is the exchange with the most liquidity in the market. This was done because outliers can cause problems when taking the average spread. For example, just one illiquid market can cause the average spread to spike, which does not reflect the true liquidity of the token.
Finally, it should be noted that this liquidity analysis is the first iteration. The following three criteria are used to derive the liquidity ranking of each token:
Trading volume
Historically, the most commonly used metric for measuring cryptocurrency liquidity has been daily trading volume, particularly on centralized exchanges. Volume is closely correlated with order book liquidity metrics such as market depth and spreads. Tokens with higher trading volume often have deeper order books, which enables traders to trade assets with limited impact on price. However, in crypto markets, this correlation can vary. For example, wash trading or other types of market manipulation can make a token appear very liquid without a deep order book, meaning that volume alone is not enough to fully assess liquidity.
Market capitalization and trading volume tend to have a strong correlation, but there are also clear divergences, suggesting that a token is not as liquid as it appears.
The more prominent tokens are:
SHIB: The dog-themed token performed strongly, with SHIB ranking 4th in daily trading volume, beating several other tokens with higher market capitalizations, including DOGE. LEO: Bitfinex's token ranked last in terms of trading volume, despite its mid-range market capitalization. FIL: Filecoin is considered a very large trading volume among centralized exchanges, with an average daily trading volume of $29 million, ranking 10th in trading volume.
Below, we plot the ranking of trading volume and market depth for each token analyzed.
Market Depth
Market depth is one of, if not the best, indicators of market liquidity, as it provides us with an exact dollar figure for the liquidity available within a certain percentage of the price. Market depth takes into account the overall level and breadth of open orders, and it is calculated based on the number of buy and sell orders at each price level on either side of the mid-price. For this analysis, a 2% market depth is used.
If the market depth for a given token is “deep,” it means there is enough open order volume on both the bid or ask side, which ultimately makes it easier to exchange the asset at a price that reflects its intrinsic value. The less deep the market, the easier it is for larger market orders to influence the price.
Some of the prominent coins are:
LINK: Despite only ranking 16th by market cap (excluding stablecoins), Chainlink has an impressive coin depth, ranking 8th overall. BNB: Arguably the most surprising, as it is the native token of the most liquid exchange, BNB ranks 10th overall in terms of market depth, while ranking 3rd in market cap. LTC: Litecoin ranks 6th in all coin depth.
Spread
In traditional finance, the bid-ask spread is the most commonly used metric when assessing market liquidity. The spread is calculated by taking the difference between the best bid and best ask price on the asset order book at a certain moment.
Generally speaking, the smaller the spread, the more liquid the market is. A larger spread indicates that the asset is less liquid and it will be more difficult to exchange assets at a stable price, so it is an important indicator when evaluating the overall liquidity of an asset from an investment perspective. Binance's average spread for November is shown in the figure below, sorted by spread from smallest to largest.
Interestingly, ETH has a tighter spread than BTC on Binance, but this can be explained by the removal of BTC trading fees on most pairs, while the fee removal on ETH on the exchange was only temporary over the summer. This caused market makers to widen the spread against BTC to compensate for the 0 fees.
The prominent coins are:
DOT: Polkadot’s token market cap ranks 8th and has the second-largest spread among tokens on Binance. DOGE: Dogecoin beats the likes of BNB, ADA, and XRP to rank 3rd in spread on Binance. ATOM: Despite being only 17th in market cap, it has an impressive 7th in spread.
Overall Liquidity Ranking
Putting the three metrics together and averaging them gives us an overall liquidity ranking for each token. In the chart below, we can see how each metric contributes to the token’s overall ranking.
For volume and depth, the top ranked coins will have the highest volume for each metric. For spread, the top ranked coins will have the lowest metric.
For example, despite BNB being ranked 3rd among all tokens, it ranks 6th overall due to its poor rankings in depth and spread. LINK performs well on spread and depth metrics but is held back by its low trading volume on centralized exchanges, ranking 9th in liquidity relative to its market cap.
Winners and Losers
This brings us to the criteria and metrics used to derive the liquidity rankings. We can now revisit the first chart and take a closer look at which tokens rank higher and lower when comparing liquidity and market cap. The following chart illustrates the difference between the two rankings for each token.
Winner:
DOGE ranks 5th in market cap among the selected coins, but 3rd in liquidity. This impressive achievement for the meme coin can be attributed to its 3rd lowest spread and 4th best market depth. LINK ranks 9th due to its excellent scores for spread and depth. Chainlink's coin market cap ranks only 16th, making it more liquid than its market cap suggests. The liquidity of ETC and BCH is impressive relative to their market caps, which should reassure investors in hard forks. Tokens with lower market caps ALGO, FIL, APE, NEAR, and FLOW are all more liquid than their rankings would indicate. APE is the biggest outlier among the coins with stronger liquidity than its market cap, ranking 17th among the most liquid coins and 25th among the largest coins by market cap.
loser:
BNB’s liquidity is not as good as I expected. As the most liquid exchange, BNB performs poorly in the depth and spread metrics. BNB ranks 6th, 3 places below its market cap. DOT performs poorly from a liquidity perspective, ranking only 16th despite being the 8th largest coin by market cap. As we saw earlier, DOT ranks 2nd in the spread ranking. UNI and LEO are the two coins that have seen the biggest declines in market cap. UNI defends that its primary use is not for centralized exchanges, and it functions as a DeFi native token. Therefore, it is not surprising to see it perform poorly in centralized liquidity metrics. LEO, on the other hand, falls into the same category as BNB and FTT. Its primary use case is very niche, and it is all about providing some benefits to the users of this exchange. LEO’s liquidity is a pretty big issue for token holders, because despite being the 14th largest coin by market cap, it ranks 2nd from the bottom in our liquidity ranking. The top 15 coins by market cap seem to be the most misleading from a liquidity perspective. Being the largest coins, investors are more likely to assume that all coins have good liquidity and low liquidity risk. As we can see from our liquidity rankings, this is not true, with 7 of the top 15 tokens having lower liquidity than their position in the market cap rankings would suggest. These tokens are most likely to mislead investors, and their liquidity risk must be properly considered.
in conclusion
A more thorough valuation approach is needed that considers liquidity risk as part of the investment process. This liquidity risk needs to take into account factors such as volume, market depth, and spreads to provide a more complete picture of liquidity. While not completely foolproof, the liquidity ranking system proposed in this article provides a more comprehensive way to assess the risk of holding a specific token by considering various aspects of liquidity. Outliers such as DOT, BNB, and LEO highlight the need for investors to carefully consider the liquidity of their holdings as part of the investment process and ongoing risk management of their positions.
