Original title: PvP

Original author: Arthur Hayes, co-founder of BitMEX

Original translation: Ismay, BlockBeats

Editor's note: Arthur Hayes takes a deep dive into the current status of token listings in the crypto market, especially the impact of high CEX listing fees on project parties and investors. The article uses the case of Auki Labs to show the advantages of listing projects on DEXs and emphasizes the importance of focusing on product development and user growth. For those project parties who blindly pursue listing on CEXs, Hayes reminds them to focus on long-term value rather than short-term price fluctuations and market hype.

The following is the original content:

PvP, or "player versus player", is a term often used by shitcoin traders to describe the current market cycle. It conveys a predatory sentiment, where victory comes at the expense of others. This notion is very common in traditional finance (TradFi). The core purpose of crypto capital markets is to allow those willing to risk their precious capital to enjoy the benefits of early participation in projects that hopefully grow with the development of Web3. However, we have strayed away from the bright path paved by Satoshi Nakamoto and then further advanced by Archangel Vitalik through the extremely successful Ethereum ICO.

In the current crypto bull run, Bitcoin, Ethereum, and Solana have shined. However, I define "new issuance" as tokens released this year that have performed poorly for retail investors. VC firms are not affected by this. Hence, the title of PvP has been given to the current market cycle. The result is a series of projects with high FDV but extremely low circulation. After issuance, the prices of these tokens were flushed down the toilet like ordinary waste.

While this is the market sentiment, what does the data reveal? The smart analysts at Maelstrom did some deep digging to answer a few perplexing questions:

Is it worth paying the listing fees of exchanges so that your token has a better chance of going up?

Is the project launching at an overly high valuation?

After I dug into the data to answer these questions, I wanted to offer some unsolicited advice for projects that are waiting for the market to pick up in anticipation of launching. To strengthen my argument, I want to single out one of the projects in Maelstrom’s portfolio – Auki Labs. They bucked the trend by not choosing a CEX for the first time and instead listed on a DEX with a relatively low FDV token. They want retail investors to earn money with them as they succeed in their journey to build a real-time spatial computing market. They also hate the high listing fees charged by major exchanges and firmly believe there are better ways to return more value to end users than the big guys living in my neighborhood in Singapore.

Sample Set

We analyzed 103 projects that were listed on major shitcoin exchanges in 2024. This is not a complete list of all projects that were listed in 2024, but it is a representative sample.

“Push the price up!”

This is a phrase we often hear founders repeat on advisor calls: “Can you help us get listed on a CEX? So that the price of our token will soar.” Hmm… I never fully believed this. I think creating a useful product or service and constantly increasing paying users is the secret to success for Web3 projects. Of course, if you have a shit project that is only worth because Irene Zhao retweeted your content, then yes, you need a CEX so that you can dump it on those retail users. This is the case for most Web3 projects, but hopefully not for the projects that Maelstrom invested in… Akshat, take note!

Post-listing returns refer to the number of days since listing, and LTD refers to performance since listing.

The price of the token has not skyrocketed on any exchange. If you paid the exchange listing fee and expected to see a chart of the token price going up, sorry.

Who are the winners? The VCs are the winners, because the media token price is up 31% on the FDV of the past private financing round. I call this the "VC extraction price". I will explain in detail the distorted incentive mechanism of VCs in the second half of this article, which pushes projects to delay liquidity events as long as possible. But now, the vast majority of people are just pure fools! This is why those drinks are free at conference social events...haha.

Next, I'm going to go a little provocative. First of all, CZ is a hero in the crypto space because he is being tortured by the devils of traditional finance in a medium-security prison in the United States. I love CZ and respect his ability to skillfully pocket money in all areas of the crypto capital markets. But…but…it’s not worth the huge price to pay for Binance listing qualifications. To clarify, Binance is not worth much as the primary exchange for your token’s initial listing. It would only be worth it if Binance served as a secondary listing exchange for free because of your project performance and active community.

Founders also often asked in our calls: "Are you related to Binance? We must be listed on Binance, otherwise our token will not rise." This "no listing without Binance" sentiment is very beneficial to Binance because it can charge the highest all-inclusive listing fees of any exchange.

Going back to the table above, while Binance listed tokens outperformed other major exchanges on a relative basis, on an absolute basis, the token price still fell. Therefore, Binance listing does not guarantee that the token price will rise.

A project must offer or sell tokens, which are usually in limited supply, to exchanges at a cheap price in exchange for the opportunity to be listed. Some exchanges are allowed to invest in projects at extremely low FDVs, regardless of the current FDV of the last private round. These tokens could have been distributed to users to complete tasks that promote the growth of the project. A simple example is that trading applications reward traders by issuing tokens to meet certain trading volume targets, which is called liquidity mining.

Selling tokens to a listing exchange can only be done once, but the positive flywheel effect formed by increasing user engagement will continue to pay off. Therefore, if you give up precious tokens just to get listed and only exceed them by a few percentage points on a relative basis, you as a project founder are actually wasting valuable resources.

The price is not right.

As I always say to Akshat and his team, you have jobs at Maelstrom because I believe you can build a portfolio of top Web3 projects that outperforms my core holdings of Bitcoin and Ethereum. If not, I will continue to buy Bitcoin and Ethereum with my spare cash instead of paying salaries and bonuses. As you can see here, if you bought at or shortly after a token listing, you would have underperformed the most hard currency ever created, Bitcoin, and two of the top decentralized computing platform layer-1s, Ethereum and Solana. Given these results, retail investors should never buy newly listed tokens. If you want to get exposure to cryptocurrencies, just owning Bitcoin, Ethereum, and Solana directly is enough.

This tells us that projects must reduce their valuations by 40% to 50% when they go public to become attractive on a relative basis. Who loses when tokens are listed at lower prices? VCs and CEXs.

While you might think the goal of VCs is to generate positive returns, the most successful managers understand that they are actually playing a game of asset accumulation. If you can charge a management fee on a large notional amount, typically 2%, then you make money whether the investment appreciates or not. If you invest in illiquid assets like early-stage token projects, which are essentially just future token promises, as VCs do, how do you make them go up in value? You convince founders to continue to raise private rounds at rising FDVs.

When the FDV of a private round increases, a VC can revalue its illiquid portfolio to market prices, showing huge unrealized returns. These strong past performances allow the VC to raise the next fund, charging management fees based on higher fund values. Furthermore, the VC cannot get paid if it does not deploy capital. But this is not easy, especially since most VCs based in Western jurisdictions are not allowed to buy liquidity tokens. They can only invest in equity in some kind of management company and, through a side agreement, offer investors token warrants for the projects they develop. This is why the "Agreement for the Sale of Future Tokens" (SAFT) exists. If you want to get VC money and they have a lot of idle capital on their hands, you have to join the game.

For many VCs, having a liquidity event is very detrimental. When this happens, gravity kicks in and the value of the token quickly returns to reality. For most projects, the reality is that they have failed to create enough products or services that enough users are willing to pay real money for them to justify their extremely high FDV. At this point, the VC has to write down their book value, which negatively impacts their reported returns and the size of their management fees. As a result, the VC pushes the founder to delay the token launch as long as possible and continue to raise private financing rounds. The end result is that when the project finally goes public, the token price plummets like a rock, as we just witnessed.

Before I thoroughly criticize VCs, let's talk about the "anchoring effect". Sometimes, the human mind is really stupid. If a shitcoin opens with a FDV of $10 billion, and it's actually only worth $100 million, you might sell the token, resulting in a huge amount of selling pressure that causes the token price to plummet 90% to $1 billion, and trading volume disappears. The VC can still book value this illiquid shitcoin at a FDV of $1 billion, which is usually far higher than what they actually paid. Even if the price collapses, the market opening at an unrealistic FDV still works in the VC's favor.

There are two reasons why CEXs want to see high FDV. First, trading fees are charged as a percentage of the notional value of the token. The higher the FDV, the more revenue and fees the exchange earns, regardless of whether the project goes up or down. The second reason is that high FDV and low circulation are good for exchanges because there are a lot of unallocated tokens that can be allocated to them. According to our sample data, the median circulation share of a project is 18.60%.

Listing Costs

I want to briefly touch on the costs of listing on a CEX. The biggest problem in current token offerings is that the initial price is too high. Therefore, whichever CEX gets the first listing rights, it is almost impossible to achieve a successful launch. If that is not bad enough, the overpriced projects have to pay a lot of tokens and stablecoins for the privilege of listing this "piece of garbage".

Before commenting on these fees, I want to emphasize that I don't think there is anything wrong with CEXs charging listing fees. CEXs have invested a lot of money to accumulate their user base, which needs to be recovered. If you are an investor or token holder of a CEX, you should be satisfied with their business acumen. However, as an advisor and token holder, if my project gave the tokens to the CEX instead of the users, it would damage the future potential of the project and negatively affect the trading price of the token. Therefore, I either recommend that founders stop paying listing fees and focus on attracting more users, or recommend that CEXs drastically reduce their prices.

There are three main ways that CEXs extract funds from projects:

Directly charging listing fees.

Require projects to pay a deposit that is returned if the project is delisted.

Force projects to spend a specified amount of project marketing on the platform.

Usually, each CEX's listing team will evaluate the project. The worse the project, the higher the fee. As I always tell founders, if your project doesn't have many users, then you need a CEX to dump your "garbage" on the market. If your project has product-market fit and a healthy and growing ecosystem of real users, then you don't need a CEX because your community will support your token price anywhere.

Listing Fees

Among the high-end CEXs, Binance charges up to 8% of the project's total token supply as a listing fee. Most other CEXs charge between $250,000 and $500,000, usually paid in stablecoins.

Deposit

Binance has designed a clever strategy to require projects to buy BNB and stake it as a deposit. If the project is delisted, the BNB will be returned. Binance requires up to $5 million in BNB as a deposit. Most other CEXs require $250,000 to $500,000 in stablecoins or the CEX's token as a deposit.

Marketing Spend

Binance, on the high end, requires projects to distribute 8% of their token supply to Binance users through on-platform airdrops and other activities. Medium-fee CEXs require spending up to 3% of token supply. On the low end, CEXs require marketing spends of $250,000 to $1 million, payable in stablecoins or project tokens.

Total, listing on Binance could cost you 16% of your token supply plus $5 million in BNB purchases. If Binance were not the primary exchange, projects would still have to spend nearly $2 million in tokens or stablecoins.

For any CEX challenging these numbers, I strongly urge you to provide a transparent accounting of every fee or mandatory expense, which I obtained from multiple projects that have evaluated the costs of major CEXs, and some of the data may be outdated. I reiterate that I do not think CEXs are doing anything wrong. They have a valuable distribution channel and are maximizing its value. My complaint is that the performance of the token after listing is not good enough to justify the project founders paying these fees.

My Advice

The game is simple, make sure your users or token holders gain wealth when your project succeeds. I am speaking directly to you, the project founders, here.

If you must do it, only raise a small private seed round to create a product for a very limited use case. Then, launch your token. Because your product is far from true market fit, the FDV should be very low. This sends a few messages to your users. First, it is risky, which is why they are buying in at such a low price. You may screw up, but your users will continue to support you because they are in the game at a very low price. They believe in you, give you more time, and you will find a solution. Second, it shows that you want your users to go on the wealth creation journey with the project. This will incentivize them to tell more people about your product or service because users know that if more people join, they have the potential to get a good return.

Currently, many CEXs are under pressure to only accept "high quality" projects due to the poor performance of most newly listed projects. Considering how easy it is to "fake it until you make it" in crypto, selecting truly great projects is very difficult. Garbage in, garbage out. Each major CEX has its preferred metrics that it considers to be leading indicators of success. Generally speaking, a very young project will not meet their standards. Whatever, there is something called a DEX.

On a DEX, creating a new trading market is permissionless. Imagine you are a project that has raised $1 million USDe (Ethena USD) and wants to offer 10% of the token supply to the market. You can create a Uniswap liquidity pool consisting of $1 million USDe and 10% of your token supply. Click a button and let the automated market maker set the clearing price based on the market demand for your token. You don't have to pay anything for this. Now, your loyal users can buy your tokens instantly, and if you really have an active community, the token price will increase quickly.

Let’s take a look at what Auki Labs tried differently when launching their token. Above is a screenshot from CoinGecko. As you can see, Auki has a relatively low FDV and 24h trading volume. This is because it was first listed on a DEX and only later on the CEX of MEXC. So far, Auki’s token price has increased by 78% from the last private round price.

For the founders of Auki, listing their token is just another day. What they are really focused on is building their product. Auki’s token was first listed on Base, Coinbase’s Layer-2 solution, on Uniswap V3 on August 28th through the AUKI/ETH trading pair. They then listed it on the CEX, MEXC, for the first time on September 4th. They estimate they saved about $200,000 in listing fees this way.

Auki’s token vesting schedule is also more equal. Team members and investors are on a daily vesting schedule with vesting periods ranging from one to four years.

Sour Grapes

Some readers may feel like I’m just being resentful because I don’t own a major CEX that makes a ton of money from new token listings. That’s certainly true, my income comes from the appreciation of the tokens in my portfolio.

If projects in my portfolio are overpricing their tokens, paying huge fees to be listed on exchanges, but failing to outperform Bitcoin, Ethereum, and Solana, I have a responsibility to speak out about it. That’s where I stand. If a CEX chooses to list Maelstrom’s project because it has strong user growth and offers a compelling product or service, I’m all for it. But I want the projects we support to stop worrying about which CEX will accept them and start focusing on their daily active user numbers.

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