Crypto exchanges are BAD for token price
There is a certain belief on #crypto market that having your #token on many exchanges gives your project credibility and some sort of maturity. In this short article I would provide certain points, which can make you believe that it’s actually something that you as an #ICO shall avoid. As always, all the thoughts are mine and made up from the experience which we currently go through at our company Discoperi.
Well, couple of years ago, in time when there were no “good and reliable” exchanges and ICOs were able to collect not more than dozens of millions, having your token traded was perceived as a “good to have”. You probably may remember lots of noice, coming from satisfied ICOs CEOs, who claimed that now their token could be found and traded freely. CEOs started bringing public awareness, making videos on that in order to raise so important #hype. Yet, times changed. As more exchanges were involved, the liquidity of a token (which was quite immature in terms of demand and product behind) collapsed. And a large share in this collapse was caused particularly by a variety of exchanges the token has been traded on.
Here is the deal. Once a token issued, typically insiders and those, who got it with a discount or for free (#bounty) aim to sell it asap. This creates a large waive of the sellers, who simply overwhelm the market. If a company does some sort of market-making directly or indirectly (with a support of an exchange or other third parties), it may slower the process. However, if such momentum happens on multiple exchanges — it’s just impossible to manage the one. Sometimes, you also can see so-called “hand-made trades”, which try to create an utopia picture that some exchanges are more efficient than others. Maybe but not when the difference is 50–60% in price. It’s a perfect place for an arbitrage. But only if there is an inherent value behind.
One way to deal with that.
Since our early days of preparation for our ICO, we started receiving multiple offers from multiple exchanges. Initially they offered us their services for money. Different prices: from 10BTC to maybe 100BTC. Something like that. We didn’t these guys. First we thought there is a better way to use our investors’ money and second — we didn’t see a straight line towards token value creation. And we really care about the value of #DISC token (reference to Discoperi ERC-20 token). After some time, as we advanced in the ICO preparation process, the same exchanges started offering their services at a discount and then — for free. We still said no to all of them.
And here is why. For us the main success of the ICO is not a fact that we sell lots of DISC tokens, instead — it’s a fact that our token is stable, has inherent value behind (has a real utility) and has liquidity. We didn’t want to be traded on exchanges, which could erode this triangle. That is why we decided that over our lifetime our DISC token will be traded on as many as 5 exchanges.
How to choose the right exchange.
Now, with this in mind there is an ultimate need to choose these 5 exchanges wisely. We literally need to be as strong in our judgement as exchanges are when they consider new tokens for listing. Without going into the details we usually consider five main qualities of a crypto exchange in order to get it through our initial screening phase. As you would see, there is nothing said about our exclusivity on a market, costs or market-making services. Take a look. Here are these factors:
- Trading volume. We constantly track the best exchanges on the volume they have and try to understand how it fluctuates and what might be triggers for that.
- Clients support service. Via talking to customers support team we get into the details on how exchange works and how satisfied customers are.
- Number of pairs for token. We investigate liquidity per pair and see why certain currencies work better with certain counterparties.
- History of brakes and hacks. We definitely consider any leakages and brakes of the exchange. If there are few of them which may hurt — we put the red flag and move away from it.
- Founders. We aim to talk to founding team if they are available and transparent. If there aren’t — there is a big trust issue.