Binance.US, an upcoming subsidiary of one of the world’s leading cryptocurrency exchanges that will be compliant to operate within the United States, has recently gotten investors excited with an announcement that the platform was reviewing 30 new assets for listing. Importantly, the news also shed some light on the Digital Asset Risk Assessment Framework — a novel set of criteria to determine blockchain projects that Binance deems worthy of adding to the platform.
In the realm of digital finance, one of the biggest imaginable accomplishments for a blockchain startup is to get its coin listed on a major cryptocurrency exchange. The combined effects of earning the seal of approval from a reputable platform with millions of users worldwide on the asset’s brand recognition, audience reach, market price and trading volumes cannot be overstated.
While in the early days of the crypto Wild West the procedures whereby exchanges vetted new tokens for their portfolios were often opaque, having a set of well-defined listing criteria is becoming an industry standard today. What are the leading crypto exchanges looking at now?
The criteria set forth in the new Digital Asset Risk Assessment Framework are organized around several core domains. As Binance U.S. operates in one of the world’s most complicated jurisdictions in terms of regulation, the list of standards opens with legal requirements, especially stressing candidate assets’ compliance with Anti-Money Laundering/Combating the Financing of Terrorism and securities laws.
Other qualifications include the core team’s strategic vision to solve some real-world problem, the community’s ability to organize in a way that aides the project’s development, demands on the asset’s supply and demand, as well as technological feasibility and security.
The framework appears to be a set of screening guidelines that assets have to pass in order to proceed to the more advanced stage of thorough internal review. According to Binance CEO Changpeng Zhao (aka CV), there are no hard requirements that are necessary for candidate projects to check: “We want good coins. It’s simple, and every coin is different. In general, we like coins with a proven team, useful product, and large user base.” There are no fixed fees, either: All listing fees are negotiated individually, and proceeds go to the blockchain-tracked Binance Charity Foundation.
Coinbase, a major U.S. digital asset trading platform, relies on a somewhat more specific set of standards. Grouped into six focal areas — i.e., conformity to the platform’s core values, technology, compliance, market supply, market demand and crypto-economics — the framework provides a lot of specific details of the review process, including, for instance, “Assessment of the engineering team and their track record of setting and achieving deadlines,” or making sure that there is a “demonstrable record of responding to and improving the code after a disclosure of vulnerability, and a robust bug bounty program or third party security audit.”
Coinbase does not charge application fees initially, yet the company reserves the right to charge such a fee to cover the costs of services rendered during evaluation and listing processes. The platform, which has ramped up the number of new assets listed this year, both accepts applications from blockchain projects and proactively evaluates existing coins even if they do not seek admission.
Paolo Ardoino, the chief technology officer at the Hong Kong-headquartered exchange Bitfinex, summarized his platform’s listing policy in the following statement to CryptoNewspeople:
“Bitfinex uses a variety of parameters to decide which blockhains or tokens should be listed. These include the quality of the project, security audits of the smart contract or the blockchain itself, along with the availability and maintenance status of the source code. Above all these parameters, we adhere to all applicable laws.”
Bittrex, a Seattle-based cryptocurrency exchange, considers factors such as innovativeness of blockchain solutions, the range of use cases, experience and reputation of the team behind the project, as well as market indicators. The process that leads to new coins getting listed on Bittrex or Bittrex International entails two stages of review: preliminary and full.
The latter step includes a full compliance review, which requires providing a memo of opinion from a U.S.-qualified external legal counsel for listing on the domestic platform, or a statement attesting that the token qualifies as a Virtual Financial Asset (VFA) under Maltese law from a legal firm licensed in the island nation if the applicant seeks to be featured on Bittrex International. Bittrex does not charge listing fees.
The exchange is also quite open about its delisting policy. One of the key criteria that Bittrex considers a trigger for removing a token or market is a lack of interest from the community, as manifested in low trading volumes and lackluster communication. Other possible reasons include compliance issues, lack of technological robustness, the core team’s unresponsiveness and inability to address arising concerns, among others.
Poloniex, a U.S.-based exchange operated by the fintech company Circle, follows a set of listing standards similar to that of Coinbase. The main criteria on which potential additions are assessed fall into the categories of core tenets of the crypto industry (such as building new infrastructure and solving problems based on decentralization), robustness of underlying technology, experience and credibility of the project’s core team, capacity to create real value, and indicators related to liquidity and other aspects of market health. There is also a requirement that each asset pass a legal review in accordance with regulations of the jurisdictions where it is traded.
Huobi, a major Asia-based digital asset trading platform, employs statistical modelling to aid decision-making on candidate coins. The exchange’s spokesperson from the listing department told CryptoNewspeople:
“There are three ways a project can get listed on Huobi Global — general listing, Huobi Prime, and FastTrack — all of which are evaluated by Huobi’s SMARTChain. Huobi SMARTChain is a quantitative model which evaluates factors based on the five integrated dimensions of Strategy (strategic positioning), Management (project management), Activity (market activity), Reliability (team credibility), and Technology (advanced technology), as well as investment potential and risk.
“On top of regular listing, Huobi recently announced two listing programs for premium tokens — Huobi Prime and Huobi FastTrack. The upgraded SMART Chain 2.0 quantitative model is applied to evaluate Prime and FastTrack projects based on around 100 factors that also take into consideration a project’s reasonable valuation, long-term value creation, team reputation, sensible token economics, and community support.”
The Huobi representative added that the platform performs regular reviews of assets already listed on the exchange. Based on those reviews, the teams of underperforming projects may receive a delisting risk warning for such issues as wrongful publicity and market conduct, evidence of fraud or manipulation, the core team’s uncooperative behavior, security breaches, low trading volumes, and more.
Guy Hirsch, Managing Director of digital asset trading platform eToro U.S., said in a statement to CryptoNewspeople:
“There are many factors eToro considers when determining which top ranking cryptoassets to include on our platform. Market capitalization and liquidity are two of the most important factors we look at. Then, we evaluate if it is a utility token or tokenized security and based on that legal analysis determine if and in which jurisdiction to list it and what compliance governance must be applied to it. Going beyond those, in certain cases we’ll also look at the use case, the team, and the product roadmap.”
EToro, Hirsch added, has never delisted a token. In order for that to happen, “there would need to be significant and persistent liquidity issues, or significant changes in rules and regulations.”
Paul Puey, CEO at Edge, a noncustodial cryptocurrency exchange and wallet platform, has some specific tips for blockchain projects seeking admission to its trading platform:
“Edge takes into account several factors when determining whether to include a new coin for integration into our exchange application. We weigh market demand, the engineering cost, customer support cost, possible ROI in exchange volume, whether the coin is introducing creative new ideas for cryptocurrency, and whether the coin is staying true to its white paper promises.
“Many of these factors can be greatly assisted by the protocol founders. Having an easy to use, readily available software toolkit and APIs for accessing the blockchain helps reduce engineering cost. Having a dedicated developer to assist in integration or even better, contribute the necessary code greatly speeds up the process. Frequently undervalued protocol developers should consider how difficult it is to support users with any new user experience requirements and corner cases that their coin creates.”
From pay-to-play to better assets
As the maturing crypto industry develops its standards and best practices, predatory exchanges and once-ubiquitous scam coins are gradually withering away. The biggest crypto exchanges are embracing their role as the space’s new gatekeepers, which is evident in increasingly well-structured processes for vetting new digital assets.
The review of these policies and standards suggests that there is a degree of uniformity in admission requirements that various exchange platforms impose. Rowan Stone, the business development director of the Horizen (aka ZEN) cryptocurrency ecosystem, observed to CryptoNewspeople:
“When it comes to listing cryptoassets, exchanges typically want to know that the asset is secure, is being actively developed by a team of competent professionals and has real world utility along with an active and passionate community to ensure suitable market demand.
“ZEN has agreed to integration deals with more than 30 exchanges over the past two years, and although it was a wild west in the early days, most exchanges are maturing at a rapid pace, both in terms of security and business prowess. Many exchanges have realized that bringing strong, popular assets to their users is a much better business model than attempting to force the pay-to-play game with often ludicrous integration fees.”
As in any field of financial activity, trust and reputation are key assets for successful players. Enforcing stringent requirements for candidate assets is the natural mechanism for maintaining exchanges’ reputations, which ultimately lowers risks for end users. Perhaps this is the best way to protect traders and investors in an ecosystem built on irreversible transactions and minimal room for redress in case something goes wrong.