The Listing Process is Broken

2 weeks ago
By CeAnn Simpson
Posted: Updated:
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Based on analysis at Smarter Ledgers, exchanges have extracted more than USD$400mm in listing fees so far in 2018, with the average listing fee topping a whopping USD$500,000 and the median fee USD$75,000. In comparison, listing on the Nasdaq, one of the largest capital markets in the world costs USD$50,000. With thorough compliance costs averaging less than half this amount, the profits go straight toward lining the pockets of the exchanges themselves. For many medium and smaller tier exchanges, listing fees provide more revenue than trading fees.

Russian based LATOKEN, ranked #56 is reported by CoinMarketCap as having adjusted 30-day volume of USD$782 mln as of Oct 15, 2018. Their trading fees are .1% for non-LA pairs and .05% for LA pairs. Based on this, we can estimate their trading fee revenue for the past thirty days to be USD$650,000. In that same period, LATOKEN has listed 41 coins, charging each USD$50,000 minimum, resulting in a total minimum revenue from listings of USD$2.2mm. The difference between the two revenue streams is staggering, with listings providing 230% more revenue than trading!

On average, companies will apply to one large exchange and four smaller exchanges in the first several months as part of their liquidity strategy. Based on the average and median fees above, an ICO can expect expenses of USD$700,000 for listing fees alone. Bear in mind that this is the average. Before Binance switched to transparent pricing, it was rumoured that they were charging ICO’s up to USD$5mm per listing. Unfortunately, much of this pricing data is protected behind NDA’s, therefore finding accurate numbers is a matter of direct discussion with projects and asking off the record questions to survey.

In the gold rush of 2017 and 2018, ICOs and other crypto projects have aimed at getting their coins and tokens listed on the most liquid exchanges. ICO participants regularly cry out “When Binance” in the telegram chat of every soon to be listed project. It’s a demand which has substantial effects on a crypto asset in the short term. Over the long term, there is no statistical difference between coins listed on Binance and those that are not. Even so, the demand for pumps can alter price sentiment if liquid exchanges are not listed upon.  This liquidity trap distorts project valuations and inflates market capitalisation of projects over the longer term.

As a result, ICO’s are raising millions more than they need to list on top-tier centralized exchanges. Average capital raises for 2018 have more than doubled in 2017, and as a result, these higher valuations decrease returns for investors.

Companies are spending millions of dollars of investor funds to gain access to liquid markets. More so, there is no transparency in pricing for many exchanges. Every listing fee is negotiated, based on how much the exchange thinks they can extract from the client. The centralized exchanges, most of them in the mid-tier range, are completely dependent on listings for revenue. Without this bloodsucking, many exchanges would dry up and die as they do not have enough trading volume to fund their operating costs through trading fees alone.  

The opaque nature of the listing process and lack of transparency around fees creates uncertainty for ICO projects and increases the length of time it takes for tokens to get listed. At Smarter Ledgers, we want to address this problem by streamlining the listing process.  We intend to work with exchange partners to create more transparent listing pricing and a standardised application process which includes due diligence services to deliver the right projects to the correct exchanges in less time. Proper due diligence would help projects identify the right exchanges for listing based on their state of readiness, and their project aims as well as reducing the time to listing thereby allowing them to plan their liquidity strategy accordingly.

Listing for listing’s sake distorts the market as projects chase liquidity and exchanges leverage this demand by charging opaque and exorbitant fees on a case by case basis.  At Smarter Ledgers, we think there needs to be a better way for projects, exchanges and investors.

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