Every company seeks profit, and most seek it fast. Crypto exchanges make that happen.
This is not always the right approach however, since most ICO or token generation events (TGE) are pressured to get listed on major exchanges as soon as possible. Usually it takes an ICO around 3 months to get listed. However, there are more than a few reasons that fast listing isn’t beneficial for companies or investors.
We need to take a close look at how crypto exchanges work, in order to form a more solid understanding of why quick listing is bad.
The process is usually the following:
When a project launches an ICO and scores a good amount of money, those funds are supposed to help build up the project or the offered services. In a perfect scenario adding more value to the project will enable to company to hire more talented people and increase their marketing effort.
Unfortunately, in most cases ICO’s are pressured to quickly get listed on a major exchange. After all the early investors who got the biggest bonuses from the project, are seeking a quick return of investment. Most of them are in to play the short game, get a quick win and move on to another project. These investors don’t really give a damn about the project or the crypto scene in general. Most of them are quite talented in negotiating discounts, quickly collect their wins and afterwards move on to another ICO.
Crypto exchanges are hunting grounds for whales
This is possible because a huge percentage of ICO’s are in a desperate need of money and simply do not have the ability to resist a huge financial injection, even it comes from a hungry whale who will sell the second he will score even a minor profit. The amount of projects who could’ve impacted the crypto scene in a positive way and never saw the light of day due to financial inability is frightening.
Now this is a very good news for exchanges. ICO’s have to pay huge listing fees to the major crypto exchanges. Binance increased their $2 million fee to $6 million simply because of the incredible demand. Even being able to guarantee this cosmic amount of money doesn’t guarantee that the project will even be listed. Exchanges also require projects to retain special bot services, which are known as market makers.
To simplify, they are bots that make sure the computer lists at least 10 buy/sell orders on the exchange all the time. Some exchanges even require 20 or more orders on both sides. The bots’ job is to fake activity and liquidity on both sides of the market, generating the façade of high volume. The amounts of volume lure in buyers with fake comfort but there are no sellers or buyers on the other side. By rough estimations it’s measured that nearly 90% of trades on exchanges are done this way.
Crypto exchanges have tipped the odds to be always in their favor
To add even more fuel to the fire, these bots cost money and it’s usually up to the project to pay for their services. Needless to say, those services don’t come cheap, but exchanges are more than happy to put ICO’s in touch with specific companies who happen to look out for the exchange’s best interests. There is also the exchanges’ demand for a deposit worth of millions of coins or tokens from the specific project, which is something the exchanges refer to as a liquidity deposit.
To recap, this leaves the exchange with the ICO’s coins or tokens, the market bots and a lot of speculators. This allows the exchange to front-run the ICO’s and the users of that platform and quickly short the market by quite literally forcing the project to be pumped and dumped. This allows the exchanges to control the movement and in a way, see or create the ICO’s future. This essentially means the exchanges are always winning.
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