Around half a dozen market participants, from investors to CEOs of companies with their own coins, told Business Insider that some exchanges are charging anywhere between $50,000 to $1 million to get their tokens listed.
A $1 million listing charge is higher than the cost to list on most stock exchanges, the mainstream equivalent, and one ICO advisor told BI the charges were “too much.” The costs reflect the current power imbalance between exchanges and crypto projects.”
The people who spoke to Business Insider, both on and off the record, declined to name the exchanges charging high fees for fear of falling foul of them. Exchanges wield huge power in the crypto market as access to larger ones can mean the difference between success and failure for many of projects.
“Basically there are a lot of people who want their coins listed,” Michael Jackson, a partner at venture capital firm Mangrove Partners, told BI. “The exchanges are where the liquidity is — it’s where the money is — so that’s where the power is just at the moment.”
‘They’ve got to be able to trade it’
Initial coin offerings boomed in 2017. ICOs — where companies issue their own digital currencies or tokens structured like a cryptocurrency — were in most cases sold to investors, allowing startups to fund their projects.
For businesses, ICOs offer a quicker and cheaper alternative to venture investment or going public. For investors, these tokens offer exposure to a red-hot sector as well as the ability to quickly and easily trade their stake in a project — something not traditionally possible with early-stage investments.
But in order to get this liquidity, the companies issuing tokens have to get them listed on at least one of the cryptocurrency exchanges that have sprung up around the world over the last few years. Like stock markets, these online exchanges based all around the world offer a venue for people to trade tokens.
Jackson said: “Investors are hoping to make money on it. They’ve got to be able to trade it and a lot of [ICOs] are almost promising their investors that, which is kind of dangerous.”
This promise of liquidity — which many investors see as a ticket to the crypto get-rich-quick lottery — puts power in the hands of the liquidity providers: the exchanges.
Oliver Bussmann, the former CIO of UBS who now runs his own Swiss fintech advisory firm, told Business Insider: “If you prepare for an ICO, you have to prepare for a listing. It’s important to get access to liquidity. That means the bigger the exchange is, the more effort and also more cost to get listed.”
‘It’s pure capitalism’
Bussmann has advised a number of high-profile cryptocurrency projects, such as Ripple and IOTA, and is the president of Switzerland’s Crypto Valley Association, a public-private partnership promoting the region of Zug as a hub for cryptocurrency businesses.
Asked how much fees to list on exchanges are, he said: “At the lower end it’s $50,000, up to $1 million — I’ve heard that. It’s depending on the size of the exchange.”
Multiple industry sources confirmed this range of charges. Jackson said: “I was doing a project, I won’t tell you specifically what one — one token on a number of exchanges — and that was the ballpark we were in.”
The CEO of one company planning an ICO told BI they had been asked for $1 million by a top-tier exchange to list their coins. They declined to be named or to name the exchange or speak publically as the whole process is currently under an NDA.
Not all exchanges are equal, which is why the range of fees varies greatly. The 24-hour trading volume of Binance, which vies for the title of biggest exchange in the world, was $1.7 billion as of Wednesday, according to market data provider CoinMarketCap.com. Bitstamp, the tenth biggest exchange globally, had avolume of $334 million — around a sixth of Binance. CoinMarketCap.com lists almost 200 exchanges, with volumes declining steadily as you go down the list.
Access to the best exchanges carries a premium because the bigger the liquidity pool, the higher the potential market value of a coin, and the higher the chance of success for a project.
“Good exchange means a high probability of good market fit, because you have access to liquidity and investors,” Bussmann said. “If you don’t get access to certain exchanges, then it’s tier two exchanges, which means access to investors is limited.”
This week the price of Ripple jumped 5% on rumours it was going to be added to Coinbase, showing the influence exchanges wield on the perception of a project or coin.
‘It’s too much’
Not all exchanges charge companies to list their coins. Some chose coins to list themselves, based on a project’s merit, or ask their customers to vote for coins to be added. (Exchanges earn money from trading so popular coins earn cash regardless of whether the company pays.)
But the ability of those exchanges that do charge to effectively name their price highlights the growing power of these market infrastructure operators.
“It’s too much,” Bussmann said. “$1 million is too much. Usually, if you do a proper ICO, with legal, accounting, etc. it’s half a million to a million. Then another million for listing? It’s not a fair relationship.”
IPOs can easily cost $1 million in fees but these tend to be spread across lawyers, compliance costs, accountants, and other sundry costs — not simply up-front fees to exchanges.
Many ICO projects will also seek to list their token on multiple exchanges, meaning they can be hit with multiple up front costs.
But Jackson said: “What we see on the crypto side is people who have raised $100 million and the exchanges are saying, ‘why the hell would I not get $1 million of that?’ It’s pure capitalism, is probably the best way of expressing it.” […]