Initial coin offering (ICO) founders aren’t the only ones getting rich from token sales.
According to research from Autonomous Next LLP, cryptocurrency exchanges are raking in millions of dollars from ICO operators seeking to secure a spot for their tokens on high-volume trading platforms.
“It sounds like the market price to list a crypto token on an exchange is $1 million for a reasonably regarded token, to $3 million for an opportunity to get quick liquidity,” the firm wrote. “We don’t know these numbers with certainty, but suspect the order of magnitude to be roughly in line with today’s reality.”
And that, of course, does not account for the transaction and withdrawal fees that exchanges rake in once the tokens actually begin trading.
Now, to be sure, the report is not exactly a surprise. That many exchanges allow promoters to pay to have their tokens listed has been an open secret almost since the industry’s inception.
Nor is it surprising that this practice has become commonplace, given that most new cryptocurrency launches come in the form of ICOs and token sale operators are expected to use a portion of the funds they raise to promote their token.
However, the fees that projects are paying to achieve an exchange listing are notable, as they are roughly significantly higher than the fees traditional companies pay when conducting an initial public offering (IPO) and listing their tokens on a traditional equities exchange.
Nasdaq-listed companies, for instance, can expect to pay approximately $125,000 to $300,000 to get listed, though they also have to pay annual maintenance fees to secure their status on the platform.
Perhaps ICO operators find the exchange listing fee more palatable upon the realization that some promoters are paying $105,000 for a single tweet.
Moreover, in the case of an ICO — particularly one claiming to be a utility token — paying an exchange to fast-track a token’s listing raises a thorny regulatory question.
Paying an exchange to list your token is more or less creating a secondary market, which is a factor that regulatory agencies such as the US Securities and Exchange Commission (SEC) consider when determining whether a token is a security. And that’s not just a problem for ICO operators — the SEC has also warned exchanges that it is illegal for them to list security tokens without registering as securities exchanges.
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Last modified: March 4, 2021 5:06 PM