Poloniex: The Best-Hated Exchange Still Standing

Poloniex is a go-to place for many exotic tokens, but it's a user-beware place full of glitches and unpleasant surprises.

You are starting to get happy and somehow confident about cryptocoins. You have some favorites, but when you choose to buy or trade them, you discover there are limited buying opportunities. A lot of good exchange methods exist, but only for a small selection of altcoins. And if you happen to be attracted to a certain token, your research takes you to Poloniex, a buzzing global cryptocoin exchange. The problem is, Poloniex is the exchange that users love to hate.

"Coins are safe"

DDOS attacks, coins suddenly not traded, frequent de-listings of coins- this is the stuff of nightmares. If you really want to use Poloniex, you may want to breathe deeply and accept those events as "the new normal." You would not expect your bank or currency broker to behave in such a way. But Poloniex is a place for wild risk exposures, managing to be tempting and off-putting at the same time.

The one reason for the problems is Poloniex expanded boldly, taking up as many coins and orders as possible. This glut of orders led to a slowdown in trading, and when it comes to cryptocurrencies, even a few hours may have a fatal effect on price levels. So for some users, Poloniex destroyed the possibility to trade fast enough. The @Poloniex Twitter feed is a long list of bugs and fixes- at least the exchange has very adept PR when panic strikes.

The site has been down almost every month since the beginning of 2017.

2017: Watershed Year

Poloniex started off with great enthusiasm and existed happily for three years. But in 2017, suddenly tokens were all the rage. Users flooded in, both newbies and experienced traders, increasing trading accounts six fold. At the same time, new tokens constantly appeared and vied for attention.

So besides the trading risk and price volatility, Poloniex sent out a clear user-beware message. The exchange warns users of "operational stress," or any of those unforeseen events that may mean a user is blocked from trading, left holding a token that loses its value within hours. Unfortunately, Poloniex never stops trading, which means users are left to watch helplessly as value evaporates.

Poloniex Trading Volume

All of the hype and influx of users means now Poloniex is under the weight of trading 90 types of cryptocoins with a market capitalization of $173 million. Ethereum trades hold the largest share, which is understandable, given that users are mostly in for the exotic tokens that can be bought for Ethereum.

Poloniex was for a while top dog among exchanges, but according to CoinMarketCap, it has slid do number 4. Some users believe there exist Asian trading places with much higher volumes on specific tokens. Currently, Poloniex has a bit more than half the volume of the number one exchange, Bithumb. Bitfinex and Bittrex also draw greater volumes. But Bittrex is the only real competition when it comes to a vast selection of cryptocoins plus liquidity.

Busted by Regulators

The moves of market regulators on cryptocurrency trading are a constant source of worry. In general, cryptocoins move in murky regulatory waters, and all the happy trading could end abruptly. This spring, Poloniex withdrew from the state of Washington, citing unfavorable regulatory climate. Just as prices were taken off, a lot of users were left hanging. Users from the states of New York and New Hampshire are also left out in the cold when it comes to all the trading opportunities. Poloniex gave up on New York for having to pay fees considered too high to continue trading. And using VPN to circumvent the bans would be a form of digital trespassing- a bit too much risk for those who would dabble in cryptocoins for fun and some extra pocket money.

Know your Coins

Strangely, well-traded coins such as Litecoin and Dash make only a tiny part of the trading volume. Simply put, Poloniex is an exchange where speculation is the name of the game. And to do that, you better know why you would be buying or selling those coins.

And Poloniex seems to have a positive price effect on altcoins. Or should we say- a positive effect on making up a price bubble? If a cryptocoin is listed on Poloniex, anything can happen to its price. If delisted, depression would follow. The good thing is, Poloniex is a great place to try out altcoins. The bad thing is, users are mostly in for a quick turnover or margin trading. Poloniex does very little for organic price growth in cryptocoins, though it can do a lot to inflate the price of a single token, at least temporarily.

For some users, Poloniex cannot be avoided. The Steemit community depends on this exchange for cashing out their Steem dollar rewards or trading Steem. Others just choose the exchange because some tokens are not available elsewhere. The MaidSafe community is strong on Poloniex, too, and there is also the lending feature.

Some are using the exchange as a wallet- which would require nerves of steel, given the "operational stress."

As Good as it Gets

Poloniex is both loved and hated, because the current state of exchanges, wallets, and the whole experience of trading or exchanging cryptocoins is still rather rough and problem-ridden. So Poloniex will attract customers, sometimes simply because it is already so big and its name rings familiar.

But Poloniex is certainly not "too big to fail." A true failure, not the usual DDOS glitches, would be a great blow to the credibility of cryptocoins in general. Poloniex has a unique position in the cryptocurrencies ecosystem, as some coins would lack popularity and liquidity without this exchange. And unfortunately, Bittrex is prone to similar problems, which seem to be a part of the package when it comes to choosing an altcoin exchange. It might as well be Poloniex.

Poloniex also relies on the USDT coin- a cryptoasset pegged to the US dollar. While this allows users to quickly calculate their investment using a known measure, USDT has its own set of technical problems to add to the whole experience.

And so Poloniex will remain both loved and hated- loved for the possibility of investing in high-growth altcoins, but also hated because it is not the best tool to handle the usual market volatility. In other words, a new, or even advanced user, may not be able to get out in time.

In March 2017, Poloniex lost 12.3 of its Bitcoin holdings in a withdrawal hacking attack. It seemed that its algorithm allowed multiple withdrawals if they were made in the same instant. But since then, the giddy peak in prices has glossed over this mistake, as traders' enthusiasm for new gains seems to gloss over past failures. Poloniex chugged along, although with increased transaction fees, to make up for the loss of funds which was distributed among all accounts.

So if you must use Poloniex, do so, but keep in mind never to invest funds that you cannot afford to lose because of volatility or technical issues when using the exchange as a storage for your cryptocurrency funds.