Despite a challenging six months in the crypto markets as a whole, the funding raised by initial coin offerings (ICOs) continues to go from strength to strength. Indeed, the controversial crowdfunding mechanism has raised over $6 billion in 2018 alone, already surpassing the 2017 total. But of course in order to generate capital through token sales, new projects are almost entirely dependent upon listings on a relatively small number of crypto exchanges. Over recent months, the spotlight has turned increasingly upon these exchanges as holding disproportionate power in the success – or failure – of nascent cryptocurrencies.
There’s nothing new about exchanges charging for listings, with both the NYSE and Nasdaq typically expecting a hefty six-figure sum upfront in addition to an annual fee. But research suggests many crypto exchanges are charging significantly more, with fees of between $500,000 to a cool million dollars requested merely for listing ICOs on some major platforms.
Oliver Bussmann, formerly of UBS, notes that ICOs can be highly short-termist in their outlook, and in the search for liquidity will do almost anything to gain listings on the largest exchanges. Many projects generate phenomenal gains over just a few weeks or months, and then fizzle out as wider investment is brought in. As Binance CEO Changpeng Zhao notes, such a system benefits no-one except the earliest investors and the exchanges themselves, with the vast majority of traders and investors suffering the fallout in terms of increased volatility and a general mistrust of new projects.
Of course such profiteering is, at least in the longer term, likely to lead to only one clear outcome: increased regulation calling time on the dominance of the crypto exchanges. The question increasingly becomes not one of if – but when – such regulation will appear.
