Efficient Frontier
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Efficient Frontier

8 Reasons Coins Get Delisted From Crytpocurrency Exchanges

Why do crypto-coins get delisted? One would assume an exchange profits from having as many trading pairs as possible. As you will see in the following list, some reasons are more surprising than others.

1. Maintenance costs

Coins listed to an exchange demand supervision and maintenance from the exchange’s programmers. If the coin has its own network, exchanges must maintain a full-node syncing the last version of a token’s blockchain and keeping the coins safely in a secure and up to date wallets. While for the speculators in the exchanges often times the technical side of the coin is obscured, technical issues and bugs in new cryptocurrency software are not uncommon and demand the time for the exchange’s developers . If the upkeep is difficult and work intensive while the trading volume is small, the money the exchange receives for trading fees is little and the exchange might find the coin not worth maintaining.

Many coins and tokens were created using an existing blockchain’s programmable infrastructure and using specific token standards such as ERC-20, which means most MEV (on Ethereum and others) tokens are largely identical. Adding more ERC-20 coins to an exchange is simple as all these tokens are supported by the the same blockchain and wallets, and little to no new code must be written in order to integrate more of them into the exchange.

2. Extracting trading fees

There are also less savory reasons for looking at the trading volume when trying to anticipate a coin delisting. Some exchange’s foremost objective is to gain immediate trading fees and use periodic delistings in order to encourage trading activity in a coin, be it organic or otherwise.

In the past some exchanges have encouraged wash trading in order to save a coin from delisting. Wash trading gives that exchange trading fees that are taken as a percentage of each trade, even if both the buying and selling is originating from the same account. The trading fees originating in wash trading serves as a roundabout way of paying the exchange to keep the coin listed, as well as boosting the perceived liquidity of the exchange in the eyes of the public.

3. Deterring wash trading

One the other hand, exchanges with a long time horizon see wash trading as a unsustainable and unhealthy phenomena which creates false signals and misleads investors in the short run. Exchanges may delist a coin if it draws a small amount of traders, even if they are generating large volumes and trading fees due to wash trading, as they believe building a strong customer base is paramount while artificial volume has little to no impact on the long term success of the asset and hurts the health and reputation of the exchange. This delisting policy keeps wash traders away from the exchanges.

4. Fears of legal or regulatory enforcement

With government regulators potently appearing on the DeFi scene, some coins which can be considered unlicensed securities or financial products may be approached by regulation authorities. In the past, cryptocurrency exchange preemptively delisted coins which were categorize as securities under relevant criteria, in order to not draw the wrath of regulators. Other coins have been removed from exchanges following the coins coming under the radar of the American SEC. Some exchanges have went further and delised coins that may be tied to gambling or that promise a dividend return, as they can also may fall into a legal gray or red zone.

5. Rent seeking by an exchange

while some exchanges actually charge fees for listing a coin, another phenomenon is some exchanges seeking payment for not delisting a coin! In a 2019 article coin project managers have claimed exchanges have approached them stating they will delist their coin due to low trading volume unless they purchases from the exchange expensive services aimed at marketing their project, in order to boost the trading volume of the coin to comply with the exchanges stated standards. Thought the nature of these services is not known, as the projects reporting on this rejected the deals, it is assumed that some of the funds would be used for wash trading, a subject we described in our previous post.

6. Negative association

Coins may be delisted due to the exchange not wanting to appear as supporting a dubious technology or token. This category includes coin which become associated with ponzi schemes, teams changing the number of coins without alerting the users and exchanges, companies misusing company funds, closed sourced coins who do not advance to open-source as promised, low development standards and other strange going-ons.

7. Unresponsive teams or dead projects

In April 2018 Houbi and OKEx exchanges halted trading and deposits in all ERC-20 tokens due to a serious exploitable bug discovered in many coins which were using the ERC-20 standard with a specific modifications, but as there was immediate communication and work done by the developer teams to rewrite the code and fix the bug, the markets could be reactivated within a short time. This is an example of the importance of responsive coin teams in assuring continued listings on exchanges. When the exchange teams faces technical difficulties with a token’s integration or security vulnerabilities but do not get a fast or indeed any response from the coin’s technical teams it becomes impossible to keep the coin integrated with the exchange within reasonable work hours. An unresponsive teams also indicates the token might not have a bright future and therefor of little interest to speculators. Similarly, some coins get delisted when the exchange teams notice the coin’s social media and code base show no signs of activity over a long period of time, thus it is unlikely to gain traction in the future and a more attractive coin might take it’s place on the exchange.

8. Security vulnerabilities

This category of delisting is basically technical maintenance costs on steroids. Some of the technical difficulties with coins reach a point at which the developers of the exchange become aware of security vulnerability or technical ambiguity in the coin’s network that put the exchange, as a large holder of the coins, in substantial economic danger. For example the coin BitcoinGold was delisted from Bittrex exchange following a 51% mining attack which caused the exchange a large loss of funds due to the attacker double spending his coins in the exchange. As the exchange was unhappy with BitcoinGold’s response, the coin was delisted. Even if an exchange dose not suffer a lose, events such as a blockchain reorganization or other security issues can create a mess for the exchange to clean up, especially if the coins team is unresponsive. Security holes or high vulnerability to 51% mining attacks are definitely an good reason for delisting a coin.

Many exchanges keep on their website a list of criteria for delisting coins, but they are usually quite general and cover many possible issues. When an exchange delists coins it usually dose not accompany it with explanations and it’s up to the users to guess or deduct which reason were applied.

Efficient Frontier stand against what we view as unethical practices which are designed to create an unreal image of the market.

We focused on researching and developing white hat practices which add value to the digital assets, the crypto industry and markets. Feel free to reach out to learn more.

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