On the 24th of August we reported a strange event, buried within other news. Some $2.5 billion was traded on the EDR/ZAR pair on localtrade.pro during a 24 hour period. With ZAR being South Africa’s national currency.
At the time, we thought little of it because it did not make much sense, so we wondered whether it was just a glitch and moved on to other news.
But some South Africans are now seemingly wondering whether that event has a more political dimension, and rather than a glitch, whether it was high level corruption.
We do not know the answer to either question, nor are we much aware of what’s going on in South Africa save for a brief Newsnight spot which suggested there were allegations of political corruption in the country.
We have no view on any such allegations or on any political party in the country because, frankly, we know little to the point of almost nothing about any of it. So a potential corruption dimension did not even cross our mind on the 24th of August.
But, some South Africans have shown an interest on the event, including what appears to be one of the country’s top newsmedia, so we owe it to them to detail the facts, as well as try and make sense of what may have happened.
On the 24th of August, the combined volume of all cryptocurrencies rose above $9 billion for the first time ever, while their combined market cap rose to an all-time high, making it a newsworthy event, so we reported it.
Our report was based on data provided by coinmarketcap.com, a go to resource in this space which provides many near instant information on trading volumes, market caps, charts, as well as ranking of cryptocurrencies.
One of their ranking is by currency or exchange based on the past 24 hours trading volumes. On the 24th of August, Localtrade was ranked first, handling $2.5 billion in only one trading pair, EDR/ZAR.
The above image is not our screenshot, but it’s what we recall so it seems very genuine. In any event, the huge volume can be seen by anyone on EDR’s page at coinmarketcap.
There, you’ll see what on the surface looks like a simple page, but is actually fairly sophisticated. It shows a somewhat stable price for EDR, usually handling volumes of around half a million dollars, but on the 24th that spiked, shown by a huge grey bar:
EDR’s trading volumes returned to normal on the 25th of August, handling its usual half a million, while price remained somewhat stable considering the volumes in question.
Those are the facts as we know them. To make sense of it is difficult if this was not a glitch. EDR’s market cap is a tiny $12 million, while its supply is around one billion coins. With each EDR currently worth $0.014082. That’s according to coinmarketcap.
The EDR website says that in 2016 “an initial emission of 2,500,000,000 EDR coins was carried out,” increasing at a monthly rate of 20.15% or around 250 million per month.
This is somewhat relevant because one way the huge trading volume can make sense, while not moving the price, is if the same amount of EDR was sold as bought at the same price.
That would require many billions of EDR coins, but the currency is somewhat strange. It claims to be decentralized, while their block explorer shows transactions being made between nicknames, rather than lengthy random computer friendly addresses such as 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa:
Such “addresses” as robocop88 or ikea555 seem more like common nicknames usually found in services that require a sign-up, rather than permissionless actual decentralized currencies which produce addresses through computer code and not human input.
You’ll also notice the supply stated is 8.5 billion. But it’s not clear whether anyone can actually verify that supply. Not least because the currency operates a multi-level referral system which indicates it might be very centralized:
That’s because you can’t do a multi-level referral system in a decentralized protocol as the protocol itself creates the addresses. Thus you do not know whether an address is one human, 1 million, or whether 1 million addresses belong to one man.
But, in this case, the addresses don’t seem to be computer generated. Instead they are seemingly created by signing up as you would for an email address or whatever other service. Combined with their multi-level referral scheme, it seems very likely that this is actually a very centralized currency.
In which case, there is no way for us to know what its actual supply is unless they open up their accounts. That’s especially the case since this “currency” doesn’t seem to have any open source code, so we don’t know how their “wallet” is ordered to operate.
One way any of this makes sense, therefore, if that $2.5 billion trading volume is genuine and if it is a case of corruption, would be for someone to sell billions of EDR and someone to buy them at around the same price.
The point here would be to move fiat, since EDR is worthless. That fiat can then be used to buy bitcoin or eth fairly unoticably as they organically handle billions in trading volumes during 24 hour periods.
A sophisticated way of moving this fiat might be to disperse it among many accounts. That is, a number of EDR holders could co-ordinate to sell their coins to the one or a few fiat holders. The later are then left with worthless EDR, but obviously that’s besides the point. Actual fiat has now moved from potentially one to many, who can then take it out of the exchange by buying btc, eth, or whatever other coin.
The choke point here would be getting that fiat into the exchange in the first place. But there are many ways that could have been done, such as perhaps sending btc or eth to the exchange, rather then fiat, then selling it for fiat, then moving accounts, then taking it out through eth or btc. Creating a complex trail where any chaser might be lost.
With that much money, you’d want to get it out as soon as possible. Hence explaining the huge volume in such a short time. But, if the above happened, they might have missed the fact that this obscure coin was actually listed on a non-obscure website, thus others picked up on the movement.
That’s if this was money laundering. We don’t know it to be the case, but if this was not a glitch, then the alternative theory of wash trading, whereby someone buys and sells his own coin in a loop of sorts, doesn’t seem very likely.
Because that someone must have been incredibly bored to engage in a difficult task of buying and selling your own coins without price increasing or decreasing at a noticable level in a currency that barely handles half a million of real trading volumes, making it fully illiquid and, thus, making such wash-trading for fun operation highly unlikely.
It seems more probable that the trading volume is genuine, unless there was a software malfunction misreporting the data, but as to who engaged in it or why we do not know.
That would be a matter for authorities if they wish to take it further, with internal trading data at localtrade.pro probably very relevant. That exchange might not require any real names to trade and the coins may have long moved to other places , but there are companies, such as ChainAnalysis, which can trace movement through blockchain analysis.
That’s because digital currencies are not really that anonymous. The money trail can be followed. And, in some cases, such money movements can be very public, as in this instance. But the pseudonymous nature of digital currencies means that the identity of whoever moved them isn’t publicly discernible, so requiring an investigation with legal authority.
UPDATE: Coinmarketcap stated this was caused by a glitch, telling trustnodes: “Localtrades had a glitch in their API that was reporting large volume numbers for that pair.”