Altcoins Blacklist: Lifting the veil of secrecy.
As the market dips, crypto exchanges start looking for more creative ways to stay afloat. The realm of token listings has long been overheated with notorious rumor: a leaked email from a CEO accusing Binance of charging 400 BTC to list their token is probably the most recent example of how crazy things get when chasing those trading volumes. Last week Binance made headlines by first removing 4 less fortunate altcoins — BCN, CHAT, ICN, TRIG — from the trading deck, which was followed by a major announcement of new listing policy that is ultimately said to make the listing fees transparent. With the altcoins market seeing red and ever-growing amount of shady coins, no wonder crypto exchanges are getting increasingly picky both in terms of selecting coins and the further audit. Yet, even with the newly praised charity initiative of Binance, there are still some ambiguous spots, like why introduce donation fees at all? To shed some light on criteria and process of listings along with the red flags for delisting, we sat down to talk with the reps of exchanges to get their stance on the status quo.
Generic altcoins — the curse of crypto industry
The major driving force for the crypto boom of 2017 was surely the exponential growth of startups running on Ethereum issuing ERC20 tokens. Naturally, there are certain factors that built up the popularity of the standard ERC20 protocol: convenience and ease of bootstrapping dApps on Ethereum network along with the potential of tokens to grow value long before the actual launch of decentralized network. This tidal wave was sure to have consequences: the market wasn’t mature enough to provide the liquidity needed to maintain the trading volumes, leaving the majority of crypto exchanges no other choice than to make listings a more complex and selective procedure to protect the space from the army of generic tokens. The reality is that striking 95% of startups have introduced the token that has nothing to do with their business being digital void introduced to the exchange merely to manipulate the asset price running outrageous pump and dump schemes. As a result, the listing procedure has turned into the black market with intermediaries and lobbyists offering their services, which ultimately forced the exchanges to increase listing fees probably in attempt to resist the wave of fresh-out-of-the-oven ‘blockchain startups’. Not much has changed over the course of 2018: the trend of extremely selective listings persists. Moreover, over the last couple of months the liquidity at most of exchanges has been declining, which made listings of new tokens rather risky endeavor. Besides, there is report that clearly demonstrates fakeness of public trade volumes data, i.e. in reality they are even lower.
The Mystery of Listing Policy
Things get blurry, when it comes to defining the listing criteria as none of the exchanges has made them publicly available so far. For the sake of resolving the puzzle, we analyzed the recent announcements made by exchanges on social media, and interviewed reps of exchanges. As a result, these 5 criteria were extracted:
Exchange representatives give their verdict
However, in reality things get a bit more tricky than announcements made on Twitter. First-hand insider information always comes in handy, that’s why sat down to talk with the reps of Coinmarketcap, Cobinhood and Exmo asking them these 8 Qs:
1. Are you looking at whether the token is already traded at any other exchanges and its trade volume?
2. Are you operating as a liquidity provider? If yes, for what entities exactly?
3. Are you planning to list new types of tokens, like ERC721 and stable coins, for instance?
4. What type of tokens dominate among the listed? Utility, Asset, Cryptocurrencies?
5. Have you ever been offered money when approached with a new token? How did you react?
6. And lastly, are you considering delisting any of the altcoins that have not been performing well?
The Listing Threshold
Some answers turned out to be lying on the surface. Hence, when asked about the listing threshold, Alfa Tsai — an engagement manager of the listing service at Cobinhood — mentioned a legit amount of funds raised at the ICO to make sure the project builds up enough liquidity, along with being fully complied with the SEC regulations, i.e. the MOU issued by a lawyer should specifically state that token being listed is not a security token. That doesn’t necessarily mean that the token won’t be listed, however, the US users will be banned from buying it. Then comes the scrutiny of the smart contract and the White Paper, and finally the check up of social media and community outreach. Dan who is in charge of content at Coinmarketcap also mentioned poor web traffic, poor engagement on social media, no verifiable team members behind projects, and lack of excitement around the project among major red flags.
It’s all about the market demand and PR
Ultimately, it looks like the first thing to be considered by an exchange when deciding the faith of a token is the user demand along with potential PR benefit. Would a newly added token bring extra exposure boosting the exchange’s existing community? In terms of PR both exchanges and projects benefit from listings. However, this equation depends on the popularity of either of them with token and exchange community interacting in various modes with one dominating over the other. Naturally, Binance gains hardly anything when listing a token with scarce followers base. Whatever the case, the exchange is always to take up a stronger position dictating the listing terms, which could be proved by the very fact of existing rumors about listings bribery. And it looks like we have a sort of Catch 22 situation over here, because the demand is pegged to the community support, and in reality it is the exchanges that are ultimately building up the community around the newly launched token. Are there many tokens you heard about before they got listed at Binance? Not likely. Exchanges are in many ways guiding the global crypto community by seamlessly pointing out at this or that token to have the best investment potential. This phenomenon becomes most relevant at the times like these, when the market is seeing red and trade volumes are dipping.
Community is the king
Naturally, in the world of shitcoins and ever-growing competition for the user base, each and every exchange is standing up for the quality of their product. This is especially true for smaller exchanges that are struggling even harder to retain users, with their listing requirements becoming more extensive. Or at least they say so. Exmo, for instance, alludes to the massive Telegram user base and at least 250 000 trade volume per day, along with the working open-source code and the team as their first and foremost criteria. More so, we were told that as of now there is a waitist of 50 projects that matched these preliminary requirements, yet are to be reviewed further.
Okay, now how about allegations of listing tokens under-the-counter? ‘We make no exceptions. Our standard procedure is to set up a meeting with the CEO or founder and get to know each other, if possible, in person. We do strive for our reputation’. Dan of Coinmarketcap continues: ‘A token being listed by an exchange on CMC is one of the factors that we take into account when listing tokens. This is simply a way for us to ensure that we can update the volume accurately by pulling from supported exchanges. We removed trading volume as a requirement in July, and will be focusing on other metrics, which we will release progressively, when listing tokens’.
ERC721s are calling the shots
When asked about exploring new token types, like ERC721s and stable coins, exchange reps confirmed that non-fungible tokens are indeed to take up some major role in global business processes. Accordingly, they are most likely to become one of the major focus of listing strategies, provided that there is decent community and liquidity backup. A remarkable thing about stable coins in particular is that exchanges consider them to be an additional tool for the deposit and withdrawal of funds, which ultimately leads to trading volume boost. ‘Still, the legal compliance and stability of the coin is our top-priority’, Exmo concludes. They also revealed the plan to bring the first ERC721 to the exchange pretty soon. CMC supports the point confirming the plan to list non-fungible tokens and stable coins as they continue to see more of them and more interest in them. Naturally, the popularity of certain tokens with major market players has become a major driving force.
More delistings on the horizon?
Obviously, the current market with tons of ‘dead’ tokens is a vivid prerequisite of delistings to become common routine. Bittrex started the practice back in January with regular updates on pending market removals published every other month now. Poloniex followed the lead in May with the delisting of record 17 altcoins. No explanation except for some vague mentioning of small insufficient user base followed ever since. Naturally, no exchange would ever be functioning without proper amount of funds to operate on, so the majority are putting into practice the consideration of token’s potential to generate a constant flow of commissions: the more it is traded, the bigger income the exchange earns on commissions.
Cobinhood’s Alfa Tsai revealed that those tokens that are running low on trade volumes and not active are automatically getting in the risk group. He defined a ‘scam token’ as not moving on time with tech development schedule and not having a working product. Without naming any specific tokens, he did confirm that some were recently delisted with more dismissals coming up.
Coinmarketcap, however, is taking up a converse approach stating that they prefer to avoid delistings in general, since they believe that the projects that are abandoned should still have fair representation forming a full picture that users should see when they are looking at the cryptocurrency space.
The bottom line? No matter how big or small, any exchange strives to grow the user base while being provided with stable liquidity flow. There’s little doubt that today it’s stable coins and non-fungible tokens that are emerging as the most promising digital assets in terms of both technical implementation and economic potential. Accordingly, the listing policy of the majority of exchanges stems from a token’s ability to generate value being in demand with the key market players. As for the instances of delisting, for now it appears that more heads will be rolling. If anything, the loss that hardly any newly launched startup can handle, is the loss of community. And that is either their major defeat, or the natural selection that is inevitable at the point where the industry is at now.