Crypto Exchanges Charge Millions to List Tokens, Report SaysBy
Entrepreneurs are finding their dreams of easy crypto financing come at a high price.
Digital token sales are letting young startups raise funds fast, but avoiding the world of venture capital and Wall Street’s other established channels isn’t free: Cryptocurrency trading platforms may be charging 10 times more to list tokens than what traditional exchanges demand for securities, according to a report on Tuesday by Autonomous Research.
Costs for a crypto listing range from $1 million “for a reasonably regarded token, to $3 million for an opportunity to get quick liquidity,” Autonomous Research wrote, cautioning that the figures are based on conversations among market participants and aren’t exact. That compares with the roughly $125,000 to $300,000 -- plus $100,000 to $500,000 of annual fees -- that exchanges charge to list fully registered equities, the report said.
A digital token sale offers a “known path to liquidity,” yet it is “in many ways expensive, and benefits the Wild West of crypto capital markets infrastructure providers,” the report said.
Startups are covering the fees by overfunding their projects when conducting what’s known as initial coin offerings. Some companies have used ICOs to amass five to 10 times more than what fintech companies typically gather using other channels, according to the report. Blockchain startups have raised more than $3 billion in ICOs this year, compared with about $270 million in venture capital rounds, according to data compiled by CoinDesk.
Tokens are more attractive if buyers know they can trade them easily, and that’s why an exchange listing often becomes crucial for the success of the ICO. Sales teams go to great lengths to convince potential buyers and wary regulators that their tokens aren’t securities.
Advisers on the deals often collect about 5 percent -- akin to the roughly 3 to 8 percent in fees that go out to investment bankers in IPOs -- in addition to marketing expenses, according to Autonomous Research.
Well connected teams with a good reputation or demonstrating traction can sell tokens privately, it said. Telegram, for example, raised more than $1.7 billion.
“We have such complexity in traditional equity markets, so it should be no surprise an analog is developing in crypto,” Autonomous Research said.