Author: Arthur Hayes, founder of BitMEX; Translated by: 0xjs@Golden Finance

PvP, or “player versus player,” is a phrase often used by shitcoin traders to describe the current market cycle. The sentiment it evokes is predatory, where victory comes at the expense of others. This is TradFi. The express purpose of crypto capital markets is to allow those who risk precious capital to enjoy the fruits of “early” entry into projects in the hope that they will grow rapidly alongside Web3. However, we have strayed from the enlightened path paved for us by Satoshi Nakamoto, and subsequently by Vitalik with his highly successful Ethereum Initial Coin Offering (ICO).

The current crypto bull run has visited Bitcoin, Ethereum, and Solana. However, newly issued tokens (which I will define as those issued this year) have not performed well for retail investors. This has not been the case for VC firms. Hence, the PvP moniker has been attributed to the current cycle. The result has been a plethora of projects launched with high FDV but low circulating supply. After issuance, the token price has been flushed down the toilet like a regular piece of poop.

While the sentiment is there, what does the data say? The smart analysts at Maelstrom did some research and answered some tough questions:

1. Is it worth paying listing fees to exchanges so that your token has a better chance of being pushed higher?

2. Was the valuation too high when the project was launched?

After digging into the data on these questions, I wanted to offer some unsolicited advice for projects waiting for the market to improve so they can launch. To support my argument, I want to highlight one of the projects in the Maelstrom portfolio that bucked the trend: Auki Labs. They did not use a CEX for their first listing. Instead, they listed a relatively low FDV token on a DEX. They wanted retail investors to earn with them as they look to succeed in their quest to build a real-time market for spatial computing. They also hated the exorbitant listing fees charged by major exchanges and believed there were better ways to provide more value to end users than big bosses living in Singapore.

Sample Set

We studied a sample of 103 projects listed on major shitcoin exchanges in 2024.

This is by no means an exhaustive list of all the projects listed for 2024, but it is a representative sample.

Raise the price!

In our consulting calls, founders often say: "Can you help us get listed on a CEX? That would drive up our token price." Hmm... I never quite bought into that. I believe that creating a useful product or service that attracts more and more paying customers is the secret to success for Web3 projects. Of course, if you have a crappy project that's only worth something because Irene Zhao retweeted your content, then yes, you need a CEX so you can pass it on to their retail users. This applies to most Web3 projects, but hopefully not the ones backed by Maelstrom... Akshat, take note!

The return is the number of days since listing. LTD refers to live to date.

Regardless of the exchanges, the tokens have not gone up. If you paid exchange listing fees hoping the price would go up, you are wrong.

Who wins? VC firms win, as the median token is up 31% from the FDV of the last private round. I call this the VC Extraction Price. I will elaborate later in this article on the distorted VC incentive structure that pushes projects to delay liquidity events as long as possible. But for now, most of you are just pure idiots! That’s why drinks are free at conference networking events…haha.

Now, let me get to the fun part. First, CZ is a crypto hero who was tortured by the demons of TradFi in a medium security prison in the US. I like CZ and respect his efforts and ability to move money from all sectors of the crypto capital markets to his own pocket. But…but…it is not worth paying a high price for a listing on Binance. To be clear, it is not worth it to get a primary listing on Binance in the case where Binance is the first exchange to list your token. It is absolutely worth it if Binance secondary lists your token for free because of the traction of your project and the engaged community.

Founders would also ask on our calls, “Do you have a partnership with Binance? We have to be listed there; otherwise, our token won’t go up in price.” This Binance-or-nothing sentiment worked great for Binance because it could charge the highest all-inclusive listing fees of any exchange.

Looking back at the table above, Binance-listed tokens may have outperformed other major exchanges on a relative basis, but in absolute terms, the token price is still down. Therefore, listing on Binance does not guarantee a token price increase.

Projects must offer or sell tokens (often with a limited supply) to exchanges at a low price in exchange for listing. Some exchanges are allowed to invest at extremely low FDVs, regardless of the FDV of the current last private round. These tokens could have been issued to users to promote the development of the project. A simple example of an effective way to use tokens is how trading-focused applications can issue tokens as rewards to traders who reach certain trading volume metrics, i.e. liquidity mining.

Selling tokens to an exchange can only be done once, but the positive flywheel of increasing user engagement pays continuous dividends. Therefore, if you give up valuable tokens to get listed and only get a few percentage points in return in relative terms, then as a project founder, you are wasting valuable resources.

Wrong price

As I often tell Akshat and his team, you work at Maelstrom because I believe you can compile a portfolio of top-notch Web3 projects that will outperform my core holdings of Bitcoin and Ethereum. If that weren’t the case, I would continue to buy Bitcoin and Ethereum with my spare money that doesn’t pay salary and bonuses. As you can see here, if you bought tokens at or around the listing price, you would have underperformed the hardest currency ever, Bitcoin, and the top two decentralized computer layer 1 tokens, Ether and Solana. Given these results, retail investors should never buy newly listed tokens. If you want crypto investing, stick with Bitcoin, Ethereum, and Solana.

This tells us that projects must reduce their valuations by 40% to 50% at launch to be relatively attractive. If the token price drops, who loses? VCs and CEXs.

While you might think VC firms are in the game to get positive returns, the most successful managers realize they are in the game of asset accumulation. If you can charge a management fee (typically 2%) on a large notional amount, then you make money whether your investment appreciates or not. If you invest in illiquid assets like early-stage token projects, which are just promissory notes for future tokens, as VC firms do, how do you make the value go up? You convince the founders to continue private placements at ever-increasing FDVs.

As FDV increases in private rounds, VC firms can mark to market the value of their illiquid portfolios. This shows huge unrealized returns, which allows the VC firm to raise the next fund based on past outperformance. This allows the VC firm to charge management fees on a higher fund value. Furthermore, if the VC firm doesn’t deploy capital, they don’t get paid. This isn’t easy because most VC firms set up in Western jurisdictions are not allowed to buy liquid tokens. They can only invest in equity in some kind of management company that writes a side letter offering their investors token warrants for the project they develop. This is why the Agreement for the Sale of Future Tokens (SAFT) exists. If you want VC money, and they have a ton of it, you have to play this game.

For many VC firms, liquidity events are poison pills. When this happens, gravity kicks in and token values ​​fall back to reality. The reality for most projects is that they have failed to create a product or service that enough users are willing to pay real money for, which justifies their absurdly high FDVs. Now, the VC firms must write down their book value, which negatively impacts reported returns and management fees. As a result, VC firms will push founders to hold off on token sales as long as possible and continue with private fundraising. The end result is that when the project finally goes public, it will fall like a rock, as we just saw.

Before I finish my critique of VC, let’s talk about the anchoring effect. The human mind is sometimes very stupid. If a shitcoin opens trading at a $10 billion FDV, and it should be worth $100 million, you might sell the token, and the net effect of all the selling pressure is that the token drops 90% to $1 billion and trading volume evaporates. VC firms can still mark this illiquid shitcoin at a $1 billion FDV, which in most cases is far higher than what they paid. Anchoring the market at an unrealistic FDV at the opening will still pay off, even if the price plummets.

There are two reasons why CEXs want to have a 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 a project will earn, regardless of whether it is pumping or dumping. The second reason is that a higher FDV and a lower circulating supply are good for exchanges, as a large number of unallocated tokens can be provided to the exchange. The median percentage of circulating supply for the sample set is 18.60%.

Token listing fee

I want to briefly touch on the cost of listing on a CEX. The biggest problem with the current wave of token launches is that the prices are too high. Therefore, whichever CEX wins the first listing will have almost no chance of having a good launch. If that wasn’t bad enough, projects with overpriced initial listings are paying huge sums of money in the form of project tokens and stablecoins for the privilege of listing.

Before commenting on fees, I want to emphasize that I see nothing wrong with CEXs charging listing fees. CEXs spend a lot of money to build up their user base, so they have to pay for it. If you are a CEX investor or token holder, you should be happy for their business acumen. But again, I am an advisor and token holder; if my project gives tokens to CEXs instead of users, it will hurt its future potential and negatively affect the trading price of its tokens. Therefore, I hope that founders stop paying fees and focus on attracting more users, or that CEXs drastically reduce their prices.

There are three main ways that CEX extracts funds from projects.

1. They charge direct listing fees.

2. They need to pay a deposit, which will be refunded if the project is delisted.

3. They require that the marketing expenses of platform project financing reach a certain amount.

Generally, each CEX listing team will rate projects. The worse your project is, the higher the fees will be. As I always tell founders, if your project has few users, then you need a CEX to dump your mess into the market. If your project has product-market fit and a healthy and growing ecosystem of real users, you don’t need a CEX because your community will support your token price no matter where your token is listed.

Listing Fee

The highest fee charged by Binance is 8% of the total token supply. Most other CEXs charge fees between $250,000 and $500,000, payable in stablecoins.

deposit

Binance has developed a genius strategy that requires projects to buy BNB and use it as a deposit. When the project is delisted, the BNB will be returned. Binance requires up to $5,000,000 worth of BNB to be purchased and used as a deposit. Most other CEXs require a deposit of $250,000 to $500,000 in the form of stablecoins or the CEX's token.

Marketing Fees

At the top, Binance requires projects to give away 8% of the token supply to Binance users through on-platform airdrops and other activities. Mid-range CEXs require payouts of up to 3% of the token supply. At the lowest end, CEXs require marketing fees of $250,000 to $1 million in the form of stablecoins or project tokens.

All told, listing on Binance could cost 16% of the token supply plus $5 million in BNB purchase fees. If Binance weren’t the primary exchange, the project would still be facing nearly $2 million in token or stablecoin expenses.

To any CEX that questions these numbers, I implore you to provide a transparent accounting of every cost or mandatory expense required to list a new token on your exchange. I obtained this data from several projects that have assessed all major CEX costs. The data may be outdated. I will reiterate that I believe the CEXs have done nothing wrong. They have a valuable distribution channel and are maximizing its value. My complaint is that the token performance after launch is not good enough to warrant the project founders paying these expenses.

My suggestion

The game is simple, make sure your users/token holders get rich as your project succeeds. I’m speaking directly to you, project founders.

If you must, raise only a small private seed round so you can create a product for a very limited use case. Then, market your token. Since your product is still far from finding true product-market fit, the FDV should be very low. This sends a few signals to your users. First, it’s risky, which is why they’re joining at such a low price. You’re going to screw up, and your users are going to stay with you because they’re only paying a pittance to get involved. But they trust you and you’ll figure it out in more time. Second, it shows that you want your users to join you on your journey to wealth. This incentivizes them to tell everyone about your product or service, because users know that if more people join the movement, they have a path to wealth.

Currently, many CEXs are under pressure to only accept "high quality" projects, as most new listings underperform. It's hard to select only the best projects, given how easy it is to fake a project before it succeeds in the crypto space. Garbage in, garbage out. Every major CEX has their favorite metrics that they believe are leading indicators of success. Generally speaking, a very young project will not meet their standards. Screw that, there is such a thing as a decentralized exchange.

On a DEX, creating new trading markets is permissionless. Let's say your project has raised $1 million (Ethena USD) and wants to provide 10% of the token supply to the market. You create a Uniswap liquidity pool consisting of $1 million and 10% of the token supply. Click a button and let the automated market maker respond to the market demand for your token and set the liquidation price. You do this without paying any fees. Now, your loyal users can buy your token instantly, and if you really have an active community, the price will rise quickly.

Open  Labs

Let's look at what Auki Labs did differently when launching their token. Above is a screenshot from CoinGecko. As you can see, the FDV and 24h volume are quite low. This is because it was listed on the DEX first and then on the MEXC CEX. So far, Auki's price is up 78% from the last private sale price.

For Auki founders, listing their token is just another day. Building the product is their real focus. The token was first listed on Uniswap V3 on August 28th through the AUKI/ETH trading pair on Coinbase’s Layer-2 solution Base. They then listed on the first CEX MEXC on September 4th. They estimate that they saved $200,000 in listing fees this way.

The Auki token vesting schedule is also more egalitarian. Team members and investors will vest daily over a period of 1 to 4 years.

Sour Grapes

Some readers might respond that I’m just unhappy that I don’t have a mainstream CEX that makes money from new token listings. That’s true; I make money based on the growth in value of the tokens in my portfolio.

If a project in my portfolio overprices its token, pays huge fees to be listed on an exchange, and underperforms Bitcoin, Ethereum, and Solana, I have a responsibility to say something. That’s my opinion. If a CEX lists a Maelstrom 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 worrying about their damn daily active user count.