Author: Jocy, IOSG Partner
The entire industry of exchanges is switching and rotating. I started using exchanges in 2013, initially using Huobi. From 2013 to 2017, many Chinese users loved Huobi. In every era, there are always one or two founders of exchanges who are determined to infuse products with passion. After the 94 ban in 2017, people around me began discussing Binance and BNB regarding ICOs/exchanges going overseas. In the past two cycles, under the leadership of CZ and He Yi, the Binance team has gone overseas, conquering cities and fortresses, and has now become the largest exchange in the universe, with users exceeding 300 million. Here, we get to the point regarding the recent discussions about listing fees after Binance has cumulatively listed 19 early Launchpool projects this year.
1. Exchanges cannot guarantee profits
Let's look at some data: this year's average ROI return for Binance Launchpool projects is 2.13 times, with an average valuation of 326 million USD. A total of 929 million USD has been raised through Launchpool, and this data is still very impressive.
Ordinary retail traders do not blame Nasdaq/Hong Kong Stock Exchange/Shenzhen Stock Exchange for the poor quality of the projects they review that lead to losses, because everyone knows that the platform cannot guarantee that trading users will make money. However, because users receive new project airdrops while holding BNB or FUSD, many users have very simple ideas. Some users will not care whether these projects are good or not, but choose to directly sell when they go live and exchange for BNB. Such a model can make both project parties and exchanges very happy through the appreciation and wealth effect of new projects in a bull market.
2. Where does the questioning come from? User mentality and investment trends
As the largest exchange in the universe, Binance indeed bears a weight it cannot carry, as users will always have higher expectations of it. Since the Launchpad began in 2018, it has never stopped exploring and listing new projects over the past two cycles. Looking at the extended time frame, Binance and Launchpad projects have indeed achieved mutual success. Many people may have forgotten the ICO projects of OK and Huobi from the last cycle, but many of Binance's Launchpad projects are still in existence. Binance has thus become the most liquid Nasdaq, with most projects distributing chips through Binance achieving sufficient allocation and digestion, making them more resilient to bull and bear cycles. In the past two cycles, many serious research community users have admired Binance's investment research capabilities, and they often choose to buy in during listings (for example, during this year's Ethena period). However, as more projects move from their initial listing to a downward trend and loss, the number of retail investors buying in has become increasingly scarce, with some projects even seeing single-digit new buyers.
3. The To-Binance model and tricks are taking shape
From the perspective of participants, Binance, as the largest exchange, helps its BNB users obtain free airdrops from project parties, further enhancing the potential value of BNB and increasing the trading activity of exchange users. Under conditions of interest, BNB holders/users naturally believe that Binance has an obligation to help them find the best investment assets, and the tolerance for errors should be very low. However, due to various review reasons, even professional fake data projects and VCs to the Binance model have emerged in the market. With user growth/data activity/TVL being packaged in a one-stop manner, when such situations become more frequent, everyone will begin to question Binance's professionalism.
Recently, there has even been a trend where certain projects purposely look at KOL accounts that He Yi follows on Twitter, then bribe/sponsor these KOLs to post information related to the projects to attract their attention. Due to the information bubble effect on the Twitter platform, when you see more of such content, you will be pushed more similar content. I even feel that when He Yi is scrolling through Twitter, is he falling into a certain information bubble dilemma? Many of the latest research and products from industry innovators are thus drowned in the information flow.
4. How can Binance break the deadlock?
4.1. Information transparency, strict penalties for problematic projects
The way for Binance to break the deadlock is continuously moving forward, including currently developing a module for unlocking information related to Launchpool projects, which has received good reviews. However, because the biggest known factor is that everyone knows He Yi has become the final decision-maker, all related interests and resources will actively convey certain signals around He Yi, and most introductions and recognitions have become a premeditated script. When the TON ecosystem is hot, the best game distribution platform goes live; when AI is hot, the social application with the most fake users is pushed; when memes are hot, the most web2 Instagram meme platform is promoted. Then, after these projects go live, when discovering issues with the founders and teams, they cannot immediately delist them, as it would harm the interests of exchange users. Thus, they are stuck in a dilemma. However, if they do not enact the most severe penalty measures for these projects, they will continue to harm more platform users in the future.
We can review the opinions on the guarantee fees required by Western projects for Binance in the last and this cycle. Around 2021, an European team invested by IOSG directly refused Binance's listing fee request at a meeting. Of course, they should regret it bitterly after these two or three years. In March this year, a US team we invested in, as a serial entrepreneur, mentioned the number of tokens to be paid to Launchpad and the corresponding valuations and proportions that needed to be given to the Binance investment department. He firmly stated that no matter what, he would pay this fee because, at that time, it was their best listing opportunity, and Binance was the best distribution channel in the market. So, this was a very happy deal, a win-win for both the exchange and the project party. However, such agreements have gone through two cycles, and it took Western founders three years to understand the true meaning of listing fees. Is there any way to make such deals more transparent? This consensus on rules, the conditions and fees for listing need to increase transparency, forming something like window guidance, opening up discussions to continuously correct and avoid some first and second level arbitrage opportunities.
4.2. Departmental interest isolation, increasing measures to avoid conflicts of interest
I believe it is necessary for Binance to separate the listing and investment departments, because when there are conflicts of interest, the criteria for listing evaluation can easily deviate. The listing department should not become a tool to help Binance's investment department generate revenue; instead, it should be more objective and fair, helping users better filter the best projects and protect their interests. Of course, it needs to be clarified that the recent claims heard: projects invested by Binance Labs experiencing a deliberate 'Great Firewall' when reaching the listing department indicates Binance's impartial attitude towards handling listings to some extent. However, this should not just apply to the Great Firewall; the Western teams that are invested by Binance should also be held to the same standards and requirements.
4.3. Cautious due diligence, diversified decision-making, and saying no to fraud
The decision from BD-Listing-approval will determine the regular internal process of Binance, increasing interaction between Binance's research and listing teams, increasing research weight, and making it public at regular intervals. Many of Binance's research reports are also very cutting-edge and professional. The Binance research team should be able to provide more guidance and discussions on the listing direction and even periodically disclose what direction and projects Binance is interested in at a certain stage, collecting market feedback and questions in advance.
Referencing IOSG's investment process, we will have sufficient internal discussion and validation, with materials from Pipeline-Summary-Memo. Theoretical research and respect for facts are very important; which users are real, which data is fabricated, and which revenue models can be sustainable. I believe that anyone who has worked in traditional investment research institutions for three to five years has a rigorous due diligence process and standards. Therefore, unless there are conflicts of interest, Binance should not tolerate or allow projects that are known to have issues to be listed on its platform. Internally, these theoretical research factions should be given greater decision-making weight, making the overall evaluation process more complete and the decision-making mechanism more diverse and decentralized. In the upcoming bull market, competition between exchanges will return to a heated level, and I believe many exchanges, in pursuit of traffic and hype, will not pay attention to fundamentals. In such a competitive environment, Binance will also face difficult choices.
Earlier, a Twitter user introduced the listing forms of Binance, Coinbase, and Upbit (attached below). I still recommend more startup teams to consider these three exchanges in this cycle, as they are still the best options in the current market. At the same time, with Trump's election, the next 6 to 12 months will be a golden window for project listings, and competition will be exceptionally fierce.
Appendix:
Binance listing form
Coinbase listing form
Upbit listing form
