The post-ICO success of many tokens is dependent on whether, and how quickly, they can be added to exchanges. Tokens that previously traded only on informal over-the-counter markets can see big surges in price when listed on an exchange. Therefore, there is a great deal of pressure on the founders of ICO-funded projects to list their tokens on digital currency exchanges so as to increase the tokens’ value and provide investors with a potential exit. Yet there are a number of complexities in the process.
There are far too many tokens seeking to be listed, and there’s no way that any exchange can keep up with every new ICO. Exchanges must be somewhat selective in order to keep from being overwhelmed. They often have to do some work to successfully integrate a new token, and due diligence may also be required to ensure the tokens they list aren’t scams.
To date, exchanges haven’t been very forthcoming about their criteria for listing new tokens. There are even rumors that some exchanges demand money in order to list a new token. Other exchanges are interested in factors like the token's daily volume, its market potential and its community.
A project's community is one of the major factors that determine how successful its token will be in the marketplace. A number of exchanges have realized this and use it as part of the selection criteria for new tokens. The representative of one such exchange said:
"Many people said ‘please add XXX’ but it's difficult to decide. So, we thought if a coin has lots of users, it might be a good one. [We] started a campaign…’'vote for your coin on Slack and we will consider this coin listing.'"
"After that, one member on Slack suggested we should do a formal one on our official website. Every project we chose worked hard on the promotion for voting. We also got lots of fake vote reports on our social channels and emails. We have to prevent the fake votes as much as we can.”
In order to deter fake votes, the exchange began charging a small fee per vote.
While it lasts
As business entities, exchanges are clearly motivated by profit. But they can only make profit when they seek high quality coins to list. There needs to be a better coordination of the symbiotic relationship between exchanges and the cryptocurrencies they list.
This could start by ensuring more openness in the coin listing selection process. The communication process also has to improve. There have been instances where project teams claim they have been warned by exchanges not to share ongoing listing discussions with their investors.
The success of this relationship is crucial to aspects of the crypto economy. It is even more important now as more decentralized exchanges emerge. Also, the recent atomic swap experimentation between Litecoin and Decred hints at what is to come, and it’s likely not good for traditional exchanges. Such exchanges should liaise with the communities of the tokens they list in order to ensure their own long-term profitability.