Price manipulation in cryptocurrency markets remains a persistent concern, especially for tokens with smaller market caps. Centralized Exchanges (CEXes) and market makers, wielding significant influence, can collaborate to artificially inflate or deflate token prices for profit. For instance, a 2019 report by Bitwise Asset Management detailed how wash trading inflated trading volumes on numerous exchanges, creating a misleading impression of market activity. In a similar vein, a 2024 Wall Street Journal report exposed how Binance fired investigators who uncovered market manipulation by DWF Labs, a client the exchange continued to retain despite the findings, underscoring the ongoing collaboration between CEXes and market makers to manipulate prices. Against this backdrop, Kaspa (KAS) emerges as a unique player with structural and community-driven strengths that resist such manipulation, offering a model for transparency and stability.

Understanding CEX and Market Maker Manipulation

A Centralized Exchange (CEX) is a platform where users can buy, sell, and trade cryptocurrencies. From the user's perspective, the expected trading experience is that they can trade at the current market price almost immediately. This means there should always be counterparties willing to accept their buy or sell orders. To ensure this smooth trading experience, liquidity is essential. Liquidity refers to the constant availability of enough buy and sell orders at various price levels, allowing users to execute trades without significant delays or price fluctuations.

For a project with a large enough trading volume, liquidity is naturally present, and users can easily execute trades. However, for smaller projects with less volume, liquidity may be insufficient, and the exchange must take steps to ensure trades can happen quickly. To achieve this, market makers are responsible for constantly placing and updating buy and sell orders on the order book. These orders must be actively maintained and adjusted in real-time to ensure that there is always liquidity available at the current market price. If the orders are not placed consistently, users may experience delays or slippage in their trades.

Before listing a coin, many centralized exchanges (CEXs) require the crypto project to have a liquidity plan in place. This plan often involves working with market makers, who are tasked with constantly placing buy and sell orders to ensure that there is always sufficient liquidity on the exchange. These market makers must continuously monitor the market and adjust their orders to ensure smooth and immediate execution of trades. Alternatively, the project may work with liquidity providers, who deposit funds into liquidity pools, and the exchange places these buy and sell orders, effectively taking on the market maker role.

Since market making involves the constant placement and adjustment of orders, it can be prohibitively expensive if regular trading fees are applied to each trade. To encourage liquidity, many exchanges reduce fees or even offer negative fees for market makers. For example, some platforms, like MEXC, provide rebates as low as -0.0075%, meaning market makers earn money on each trade.

Notice that while this system improves liquidity and smoothens trade execution, it can also encourage wash trading. Wash trading is when the same entity repeatedly buys and sells an asset to make trading volumes appear higher than they are. According to a 2019 study by Bitwise Asset Management, up to 95% of reported trading volume on some centralized exchanges (CEXs) may come from wash trading. Fee rebates can motivate market makers to engage in this practice, making a token seem more popular and attractive.

Artificially inflated volumes mislead investors, distort market sentiment, and can obscure a token’s true value. Tokens with smaller market caps are particularly at risk because their low liquidity makes price manipulation easier. These practices undermine trust, harm retail investors, and destabilize the market ecosystem.

Market Maturity and Liquidity: Kaspa's Buffer Against Price Manipulation

In the volatile cryptocurrency market, maturity and liquidity are key defenses against price manipulation. A larger, more liquid market absorbs significant trades better, reducing drastic price swings caused by manipulative tactics. Increased liquidity spreads buy and sell orders, diluting the impact of any single trade, which is crucial in preventing the exploitation of low liquidity for practices like wash trading or coordinated price manipulation.

Kaspa’s growth reflects its market maturity, with increasing trading volume and a stable position in the top 50 by market capitalization. As shown in Figure 1, both linear and logarithmic scales highlight the steady rise in liquidity, which reduces the likelihood of significant price fluctuations and strengthens market stability.

Additionally, Kaspa’s stability and growing presence in the cryptocurrency ecosystem suggest it is becoming less susceptible to manipulation, especially as institutional involvement rises (discussed further in the next section). This combination of liquidity and institutional interest further shields Kaspa from market volatility.

Figure 1

Growing Institutional Interest

In addition to the notable growth in market size and liquidity, we have seen a significant uptick in interest from institutional investors, further signaling Kaspa's maturation as a market player.

Figure 2 provides a detailed breakdown of coin outflows from the wallets of major exchanges, highlighting a consistent pattern of large account movements beginning around November 2023. This shift indicates the active involvement of institutional entities in the Kaspa market, which is often accompanied by rigorous due diligence and long-term investment strategies.

Figure 2

Such strategic participation by these large players contributes to a more transparent and stable market environment. It helps insulate Kaspa from the volatility that often results from short-term, opportunistic market actions, reinforcing its position as a resilient and mature cryptocurrency.

Supporting this observation, withdrawals to large accounts have remained steady, even during periods of heightened market volatility. This consistency suggests that these transactions are driven by strategic planning rather than reactionary or manipulative behavior, emphasizing the role of institutional investors who are guided by comprehensive analysis and a long-term vision for their holdings.

Decentralized Ownership Shields KAS from Price Manipulation

Kaspa's asset ownership and mining process are both highly decentralized, but in a way that avoids the extremes of being overly fragmented or concentrated. The decentralized mining system reduces the control that large mining pools can exert over the network, making it more resilient to potential manipulation. At the same time, Kaspa’s coin ownership model ensures that no single holder or group controls too much of the circulating supply, helping to maintain a stable market environment. In the following sections, we examine how Kaspa’s BlockDAG architecture supports mining decentralization and how its balanced coin ownership structure contributes to a stable and secure network.

Kaspa's Unique Decentralized Mining: A Key Defense Against Market Manipulation

Kaspa's innovative BlockDAG architecture fosters enhanced mining decentralization, offering a significant defense against market manipulation. By allowing multiple blocks to be added simultaneously, Kaspa creates more opportunities for miners, including those with lower hash rates. This reduces the dominance typically exerted by mining pools and lowers barriers for smaller participants. The architecture's reduced block time and parallel mining prevent any single group from dominating the network. As a result, mining power is more evenly distributed, enhancing network resilience and making it more resistant to manipulation.

To further examine the effect of Kaspa’s BlockDAG architecture, we analyzed sizable cryptocurrency projects that meet two specific criteria: having at least 20 mining pools and a market capitalization of 100 million USD or more. In Table 1, we compare these projects by calculating their mining pool dominance ratio, defined as the total reported hash rate controlled by mining pools divided by the overall network hash rate. This ratio provides a quantitative measure of the influence mining pools have over the mining process. Remarkably, Kaspa exhibits the lowest pool dominance ratio among all sizable projects, signifying its exceptional level of decentralization. This low ratio demonstrates that Kaspa's mining network is less vulnerable to centralized control, thereby diminishing the risk of coordinated attacks or manipulative behaviors.

For some projects in this table, the reported pool hash rate exceeds the network hash rate. This discrepancy arises because the pool hash rate reflects the combined computational power reported by mining pools, which may include overestimations or duplicate counts. For instance, some miners engage in dual pooling, connecting to multiple pools simultaneously, inflating the totals. In contrast, the network hash rate is an algorithmically derived estimate based on mining difficulty and the average time taken to mine recent blocks, providing a more accurate reflection of the network's actual computational power.

Figure 3

Figure 3 presents a detailed breakdown of the sources of mined blocks across the last 1,000 blocks forKaspa, Bitcoin, and Litecoin, categorizing them as either originating from mining pools or smaller individual participants. The data highlights a stark contrast in mining decentralization:

• Bitcoin: Only 0.9% of blocks were mined by non-pool participants, underscoring the near-complete dominance of mining pools.

• Litecoin: 6.8% of blocks were mined by non-pool participants, reflecting slightly better decentralization but still heavily pool-dependent.

• Kaspa: A remarkable 64.2% of blocks were mined by non-pool participants, demonstrating an unparalleled level of individual involvement.

This substantial level of solo mining in Kaspa underscores its highly decentralized mining framework. Unlike Bitcoin and Litecoin, where pools dominate block production, Kaspa’s architecture enables smaller participants to effectively contribute without relying on pools. This dramatically limits the control any single entity or group can exert over Kaspa’s network. The high proportion of individually mined blocks ensures a more distributed decision-making process, leaving Kaspa largely insulated from potential manipulative practices enabled by concentrated mining power.

Such resilience highlights Kaspa's unique position as a decentralized and robust cryptocurrency network, setting a benchmark for other blockchain systems to emulate.

Figure 4

Balanced Coin Ownership

Kaspa’s coin ownership model is both decentralized and strategically balanced, which plays a vital role in its market stability. In this section, we provide an in-depth analysis of Kaspa's coin ownership structure, illustrating how it compares to other major cryptocurrencies.

Figure 5 is a snapshot of coin ownership centralization of top 100 market cap projects, regarding how much of the circulating supply is controlled by the top 10 and top 100 holders. Compared to other major cryptocurrencies, Kaspa ranks in the top 10 percentile for decentralization. This means that no single holder or small group of holders can control too much of the network, reducing the risk of manipulation.

Figure 5

Kaspa also avoids a potential problem that can happen when ownership is "overly decentralized". While decentralization is generally good, if too many small holders own a currency, it can create 'market fragility.' This means that without large holders to provide stability, small changes in supply and demand can cause big price fluctuations, leading to market instability. Kaspa avoids this issue by maintaining a healthy balance in its coin distribution. Figure 6 shows the percentage of coins held by the top 100 wallets. On the left side of the plot, a small cluster of projects stands apart from the majority, indicating a state of extreme decentralization. These projects, lacking significant investor backing, may struggle with stability. In contrast, Kaspa remains within a balanced decentralization range, with 33.29% of its total supply held by the top 100 wallets, placing it on the more decentralized side of the 'healthy decentralization' cluster.

Figure 6

This balanced distribution offers several benefits:

• Decentralization without control: No single entity holds too much influence, keeping the network secure and decentralized.

• Stability: Kaspa avoids the instability often seen in overly decentralized systems, where small holders could trigger market chaos.

• Attractiveness to investors: The coin’s distribution ensures there’s enough strategic interest to support long-term growth and coordination without leading to volatility.

Kaspa's coin ownership model helps keep the network stable while preventing the risks of too much control or fragmentation. This balance makes Kaspa an appealing and sustainable investment for both retail and institutional investors.

Kaspa's Resilient Future: A Model for Sustainable Growth

As the cryptocurrency market continues to evolve, the need for transparency, stability, and resilience becomes ever more critical. Kaspa's unique blend of decentralization, robust liquidity, and growing institutional interest positions it as a strong contender in the battle against market manipulation. The network’s decentralized mining architecture and balanced coin ownership structure not only safeguard against undue influence but also foster an environment conducive to long-term growth.

Kaspa's continued success will depend on maintaining these key strengths, ensuring that it remains an attractive and reliable choice for both retail and institutional investors. As the market matures, Kaspa’s model of decentralized power, coupled with transparent and sustainable growth, offers a promising blueprint for the future of cryptocurrency ecosystems.