A side effect of plummeting cryptocurrency prices is that crypto exchanges such as Binance, Bitfinex, OKEx, and many others are seeing trading volumes drop considerably, and with it, the revenue these companies derive from the trading fees associated with each transaction an investor makes. In an effort to continue to drive strong revenue numbers and maintain market share gained during the 2017 cryptocurrency market bull run, many exchanges have turned to unorthodox business practices in order to gain a competitive edge, lure in more customers, and profit off new coins being listed on their exchange.
Crypto Bear Market Has Forced Exchanges to Get Creative
According to data from cryptocurrency price data aggregate site CoinMarketCap, trading volumes in the cryptocurrency market have declined 80% from its January 2018 high led by Bitcoin’s meteoric rise in late December.
Since then, new crypto exchanges, new investment products, and even new coins have surfaced that could further divert revenue from the current major players scrambling to maintain their market share.
“The market downturn has certainly contributed to an increase in unorthodox strategies by token issuers and exchanges,” Lucas Nuzzi, director of technology research at Digital Asset Research, told Bloomberg.
Crypto Exchanges Strong-Arm Coin Issuers With Random Listing Fees
Many crypto exchanges charge coin issuers to list their coins for trading among investors in an attempt to bolster their bottom line at the expense of cryptocurrency projects themselves. Lex Sokolin of Autonomous Research says that these fees have amounted to as much as $1 billion in exchange revenue.
In one such example, Singapore-based cryptocurrency exchange KuCoin allegedly charges as much as 50 BTC to have a new coin or token listed, according to Christopher Franko, co-founder of North Carolina-based blockchain startup Expanse.
“We can pay for it, but it doesn’t justify the means,” Franko told Bloomberg in a phone interview.
KuCoin denied the claim, suggesting that prices vary by startup and added that the fee itself isn’t the motivation to list projects. The “project itself is,” said KuCoin spokesperson Miles Wu.
Franko also recently accused Binance of charging a staggering 400 BTC, or approximately $2.5 million in current the current price per Bitcoin – a claim that Binance CEO Changpeng Zhao vehemently disputed.
Another major exchange, OKEx, doesn’t charge coin issuers, but instead encourages them to bring in 50,000 new registered users to the exchange, with at least 20,000 of them actively trading with an account fund by a minimum of one ETH. Meeting those guidelines doesn’t guarantee a coin will be listed, and will only give them a “better shot,” according to the report.
Both exchange’s listing approach is in stark contrast to the easy to understand standards set by traditional financial firm NASDAQ, which charges $50,000 to list a 15 million share company, and $225,000 to list a company with over 100 million shares.
Native Token Issuance To Encourage User Voting and Loyalty
Crypto exchanges such as KuCoin, Binance, and Bitfinex’s DEX, Ethfinex, all offer investors native cryptocurrency tokens of their own, both as an investment vehicle, but also to give discounts on trading fees or to be used to vote for coin listings. Such a strategy can encourage customer loyalty as they become bound to the exchange’s native token and reap the benefits of holding the token.
In these cases, the addition of new listings is largely in the hands of the cryptocurrency community. In addition, the native tokens help these exchanges maintain market share by keeping customers and their transactions tied to their own ecosystems.
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