This article will discuss the rationality of listing fees and how to respond to them.
Author: Jocy, Partner at IOSG
The entire industry of exchanges is switching and rotating. I have been using exchanges since 2013, starting with Huobi. From 2013 to 2017, many Chinese users were very fond of Huobi. In every era, there are always one or two exchange founders who are deeply committed to their products, willing to infuse their passion into them. After the events of September 2017, people around me began discussing Binance and BNB, as well as ICOs and exchanges going overseas. In the past two cycles, under the leadership of CZ and He Yi, the Binance team went overseas, conquering territories, and has now become the largest exchange in the universe, with users exceeding 300 million. Here we will delve into the topic regarding the recent market skepticism about listing fees after Binance has cumulatively launched 19 early Launchpool projects this year.
1. Exchanges Cannot Guarantee Profits
First, let’s look at some data. This year, the average ROI of Binance's Launchpool projects is 2.13 times, with an average valuation of 326 million USD, and a total of 929 million USD raised through Launchpool. This data is still very impressive.
Ordinary retail traders generally do not blame Nasdaq/Hong Kong Stock Exchange/Shenzhen Stock Exchange for the poor quality of the projects they review that lead to losses, because everyone knows that platforms cannot guarantee that trading users will make money. However, since users receive airdrops of new projects while holding BNB or FUSD, many users have a very simple mindset. Some users do not care whether these projects are good or bad; instead, they choose to sell immediately when the projects go live and convert to BNB. In such a model, during a bull market, the rise of new projects and the wealth creation effect make both the project parties, exchanges, and retail holders of BNB very happy.
2. Where Do the Doubts Come From? User Mindset and Investment Trends
As the largest exchange in the universe, Binance indeed bears a weight it cannot bear, as users will always have higher expectations of it. Since the launch of Launchpad in 2018, it has never stopped exploring and listing new projects over the past two cycles. Looking at the long-term cycle, Binance and Launchpad projects have indeed achieved mutual success. Many people may have forgotten the ICO projects of OK and Huobi from the last cycle, but many Launchpad projects from Binance still remain. Therefore, Binance has become the exchange with the best liquidity, with most projects being distributed through Binance, achieving sufficient allocation and digestion of tokens, which can better withstand bull and bear cycles. In the past two cycles, many community users who studied seriously admired Binance's research capabilities and would often choose to buy in when projects went live (for example, during this year's Ethena period). However, as more projects have shown a downward trend from the first day of listing, the number of retail buyers has decreased significantly, and there have even been instances of single-digit new buyers for certain projects.
3. The To-Binance Model and Patterns Are Forming
From the perspective of participants, Binance, as the largest exchange, helps its BNB users obtain project airdrops for free, further enhancing the potential value of BNB and increasing the trading activity of exchange users. Under these interests, BNB holders/users naturally believe that Binance has an obligation to help them find the best investment assets, and the margin for error should be very low. However, due to various review reasons, there have even emerged professional fake data projects and VCs in the market that follow the To-Binance model, with user growth/data activity/TVL all packaged in a one-stop manner. As such situations become more frequent, people will begin to doubt Binance's professionalism.
Recently, there has even been a trend where certain projects specifically look at KOL accounts that He Yi follows on Twitter, and then bribe/sponsor these KOLs to publish project-related information to attract their attention. Due to the information cocoon effect on the Twitter platform, when you see more of such content, you will be pushed more similar content. I even wonder if He Yi, while scrolling through Twitter, has fallen into some kind of information cocoon dilemma, where many of the latest research and products from industry innovators are drowned in the information flow.
4. How Can Binance Break the Deadlock?
4.1. Transparency of Information and Strict Punishment for Problematic Projects
The way for Binance to break the deadlock has always been to move forward, including the current development of an information module for unlocking related projects in Launchpool, which has received positive feedback. However, because the biggest open secret is that once everyone knows He Yi has become the final decision-maker, all related interests and resources will actively convey certain signals around He Yi, and most introductions and understandings become premeditated scripts. When the TON ecosystem is hot, the best game distribution platform goes live; when AI is hot, the social application with the most fake users is pushed; when memes are hot, the most web2 Instagram meme platform is promoted; and then, when these projects are already listed, if issues with the founders and teams are discovered, they cannot be delisted immediately, as this would harm the interests of exchange users. Thus, they find themselves in a dilemma, but if they do not impose the strictest punishment measures on these projects, they will continue to harm more platform users in the future.
We can look back at the views on listing fees required by Western projects for Binance in the last cycle and this cycle. Around 2021, a European team that IOSG invested in directly rejected Binance's listing fee request at a meeting. Of course, they must regret it deeply after two or three years. In March of this year, a U.S. team we invested in, as a serial entrepreneur, mentioned the number of tokens they needed to pay to Launchpad and the corresponding valuation and proportion to be given to Binance's investment department. He firmly stated that no matter what, he would definitely pay this fee because, at that time, it was their best listing opportunity, and Binance was the best distribution channel in the market. Therefore, it was a very happy deal, a win-win for both the exchange and the project party. However, this agreement took two cycles, and it took Western founders three years to understand the true meaning of listing fees. So, is there any way to make such deals more transparent? This kind of rule consensus, the conditions and fees for listing should increase transparency, forming a similar window guidance, opening up discussions and continuously correcting to avoid some first and second-level arbitrage opportunities.
4.2. Departmental Interest Isolation, Increasing Measures to Avoid Conflicts of Interest
I believe Binance needs to separate the listing and investment departments because when terms involving mutual interests arise, the evaluation standards for listings can easily deviate. The listing department should not become a tool to help Binance's investment department generate revenue but should be more objective and fair, helping users better filter the best projects and protect their interests. Of course, it needs to be clarified that the recent claims heard: projects invested by Binance Labs are deliberately being built up with a "Great Firewall" from the listing department, which to some extent indicates Binance's impartial attitude towards handling listings. However, this should not just be a "Great Firewall"; Western teams investing in Binance should also be held to the same standards and requirements.
4.3. Prudent Due Diligence, Diverse Decision-Making, Saying No to Fraud
From BD-Listing to the listing decision, it should become a routine process within Binance, increasing interaction between Binance's research and listing teams, enhancing the weight of research and making it public regularly. Many of Binance's research reports are also very cutting-edge and professional. The Binance research team should have more guidance and discussion in the listing direction and can even periodically disclose what directions and projects Binance is interested in at a certain stage, collecting market feedback and issues in advance.
Referring to the investment process at IOSG, we have sufficient internal discussions and validations, with materials from Pipeline-Summary-Memo. Theoretical research and respect for facts are very important. Which users are real, which data is fake, and which revenue models can be sustainable. I believe that anyone who has trained in traditional investment research institutions for three to five years has a rigorous due diligence process and standards. Therefore, unless there are conflicts of interest, Binance should not tolerate or allow projects that are known to have issues to be listed on its platform. Internally, these theoretical research factions should have a higher decision-making weight, making the overall evaluation process more complete and the decision-making mechanism more diverse and decentralized. In the upcoming bull market, competition among exchanges will return to a fever pitch, and I believe many exchanges will not focus on fundamentals for the sake of traffic and hype. In such competition, Binance will also face a dilemma.
Earlier, a Twitter user introduced the listing forms of Binance, Coinbase, and Upbit (see appendix below). I still recommend that more entrepreneurial teams consider these three exchanges in this cycle, as they remain the best choices in the current market. Additionally, with Trump's election, the next 6 to 12 months will be a golden window for project listings, and competition will be exceptionally fierce.
Appendix:
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