WTF: Wallet Trust Factor by Synchrony

Global cryptocurrency adoption jumped over 880% in 2021 with the majority of newcomers coming from small retail and individual users{1}. With the increased intention and use cases, especially in the retail user segment, comes the demand for ergonomic and trustable products. The users entering the industry now, as well as their more experienced counterparts,  need to be able to trust the data and decisions they make. One of the most sought after features for new retail users is copy-trading. Simply put, copy-trading involves one user following another user’s trades. While this concept is not new in crypto (or in traditional finance), it is rife with problems that are yet unsolved. In the crypto space one of the primary issues involves trust: 
 
How do I know the wallet I am copying is decent? 
How do I know I can trust the person I am copying? 
 
This is not an easy problem to solve because of the inherent anonymity blockchain infrastructure provides users. The other side to this equation is the fact that blockchain, while anonymous(generally speaking), also has an immutable ledger of transaction histories for all wallets. So on the one hand you have no idea who you are copying, but on the other you have all of the data available relative to that specific wallet. While this data is not like having a licensed financial institution, with a physical address, beholden to shareholders, regulatory restrictions, and a brand image to maintain, it does provide enough information to make informed decisions with data points that will either indicate more or less trustworthy actions: or as Synchrony likes to call it a Wallet Trust Factor. We use the term wallet here because that is the terminology used to describe a user’s account where their assets are held. 
 
A Wallet Trust Factor (WTF) takes a variety of data points available on-chain and from RPC providers, and distills them into a quantifiable ranking system that helps users see at a glance how trustworthy a wallet is (always DYOR; do your own research). While this equation might seem simple on the surface level, the variables at play as well as the testing and retesting of hypotheses on how correlated a data point is to being ‘trustworthy’ is nebulous.
Let’s look at a couple of data points to extrapolate this a bit. 
 
Wallet creation date – A wallet that has been in existence for a while might hold more trust than a brand new wallet; even though the wallet that has existed for 5 years versus the one for 5 min do not hold any special privileges. Both wallets could be more or less profitable, both wallets can make bad decisions, but a wallet that has been through several market cycles allows users to see the story of that wallet without knowing the user. So the longer a wallet has been around the higher the trust score. 
 
Wallet trade volume – A counter argument to the wallet creation date is trade volume. Just because I have had a wallet since 2013 does not mean I am a better trader than a wallet from 2019. A 5 year old wallet with no trade volume versus a 1 year old wallet with millions in trade volume are going to have different trust scores. The user who has traded substantial amounts of money is likely going to know how to trade more than a wallet with no trade volume. 
 
Money in vs. Money out – Another counter to the previous metric example is that users are not copying wallets because they trade a lot, but because they are profitable. Tracking of a wallet’s inflows and outflows of capital, and when they executed trades, all come into consideration. This is quite tricky because while it might seem as simple as measuring wallet size on day 1 and day 10, and then exhibiting the increase or decrease as a %, it is not that easy. Not only can users have multiple wallets, users can also have exchange accounts where there is almost no visibility because custody of assets is handed over to the centralized institutions (CEX). While there are plenty of merits to trading on exchanges, the lack of transparency makes it hard to tell if there was profit from the user’s trades on the platform without visibility, or if they just added more capital. Another variant of this metric would be the profitability of the user’s trades as a %- e.g. if the user invested in a token that did 70%+ in a week.
 
This is not an easy metric to cover definitively, however Synchrony has made it a priority for our decentralized copy-trading module. Synchrony employs a unique combination of composable index-driven parameters to provide as restrictive, or as flexible copy trading strategies, as our users desire. Our Wallet Trust Factor (WTF) takes a variety of variables like wallet age, value and  volume over time, with which protocols a wallet interacts with, and an evolving set of factors, and weighs them based on their trustworthiness and the demonstrated on-chain behavior, to give our users more information to help them make informed decisions. As we gather more data and input from the community we will evolve this product with our analytics platform to maximize the data quality and user experience. 
 
Stay tuned for more updates on our protocol, partnership announcements, and community events – including some competitions and giveaways!
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{1} (https://blog.chainalysis.com/reports/2021-global-crypto-adoption-index) 
 
Disclaimers:
The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Synchrony or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
 
All Content in this article is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in this article constitutes professional and/or financial advice, nor does any information in this article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto.
 
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