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What is Liquidity? Cryptocurrency Exchange Listing Fees & Exploitation

July 11, 2018

liquidity cryptocurrency blockchain

Suppose that you are a typical middle-class man named Dave who possesses a handful of valuable assets. You have a 2-bedroom house, a car, some expensive oil paintings, some jewelry, and a safe full of cash.

One day, your younger sibling, Christina, comes to you in a bind and urgently needs to borrow some money to make the final payment on her student loans before the interest rate gets hiked up by 5%. Your payday is still a few days away, and your bank account is running low after paying the month’s bills.

Assuming that you’re lucky enough to have a healthy, trusting relationship with Christina and you want to help her out, what should you do?

The answer is pretty obvious, right? You’d lend her some of the cash from your safe.

You’re not going to put your house on the market. It would take way too long to sell and you’d lose a lot of money in the process due to closing costs, realtor fees, etc. You’re not going to sell your car because the paperwork involved and the process of replacing it would hardly be worth the hassle.

Likewise, your expensive oil paintings and jewelry may not even be that important to you, but you’d have to sell the paintings in an art auction or go to a sleazy pawn shop that won’t give your a fair value for your jewelry. Not worth it.

But the cash is easy. You just open the safe and grab the amount Christina needs to get out of her bind. The moment you give it to her, she can use it to pay off her loan and save herself hundreds of dollars in interest.

If you agree that cash is the easiest way for you to help your sibling out in this situation, then you already intuitively grasp the main subject of this article: liquidity.

1. The Difference Between Liquid & Illiquid Assets

Our example with Dave and Christina is intended to illustrate an important distinction that one can make about assets. In it, we have several illiquid assets - a house, a car, some paintings, and jewelry - and one liquid asset, cash.

Cash is a liquid asset because it can be easily exchanged in an established marketplace without its price being noticeably impacted or easily manipulated by the exchange process.

Transferring ownership of the cash is also incredibly straightforward. If you possess US Dollars and are in the US, you’ll find that its easy and efficient to use that USD to buy goods and services or pay bills.

The other assets are illiquid because they are not easily transferable nor will their price stay as steady in the exchange process. The difficulty inherent in converting any one of them into a loan payment is exactly why we consider them illiquid.

It is not critical that those assets be liquid, however. They are not commonly used as a medium of exchange, but rather as an investment vehicle or simply for their utility.

On the other hand, any asset that does serve as a medium of exchange needs to have good liquidity in order to do so well. Included among those assets are, of course, cryptocurrencies.

2. Crypto Exchanges & Coin Liquidity

Coin liquidity of crypto assets is widely considered to be one of the most important factors in achieving mainstream adoption of blockchain technology.

This is true not just in a general sense, but also on a project-by-project basis. Simply put, a cryptocurrency project with zero liquidity is going to fail. It doesn’t matter if the project is innovative or revolutionary, if it can not be bought and sold at relatively stable prices, it will struggle to achieve any noteworthy adoption.

So, how can cryptocurrency projects improve their coin liquidity?

The easiest way for a cryptocurrency to gain liquidity is to be listed on crypto exchanges. The more exchanges a coin is listed on, the more easily it can be traded by large amounts of people.  

That seems pretty straightforward. If you create a cryptocurrency and want to give it a chance to succeed, you should get it listed on as many exchanges as possible.

But therein lies the problem. As the gatekeepers to liquidity, cryptocurrency exchanges are in a position of power. Their decision to list or not list a coin can greatly influence its success. So what do they do? Surprise, surprise… they take advantage of their power by charging exorbitant listing fees.

How exorbitant are we talking?

It’s not at all uncommon for crypto exchanges to charge projects 6 or even 7 figure USD amounts to get listed on their platform. There is some development work that goes into listing a new cryptocurrency on an exchange, but the cost of that work is well below the fees that exchanges often charge. Listing coins is an easy way for exchanges to generate revenue that many are all too keen to take advantage of.

3. COOPEX - A Decentralized Exchange With No Listing Fees For ERC20 Tokens

After recognizing how many crypto exchanges exploit projects through listing fees, it became clear how we could contribute to a healthier decentralized ecosystem. Just one company or project that goes against the status quo set by its competitors and succeeds can have a massive impact on business practices throughout its industry.

That is exactly what we aim to do in creating the Cooperative Exchange (COOPEX) - the world’s first decentralized exchange (DEX) that is fully transparent in our listing process and doesn’t charge outlandish fees to small market cap cryptocurrency projects. In fact, COOPEX doesn’t charge any fees at all for Ethereum ERC20 tokens (or tokens on other similarly popular platforms such as NEO and EOS.)

The development work required in listing ERC20 tokens on a crypto exchange - be it a centralized exchange or a DEX - is minimal. Exchanges that charge high fees for this work are doing so at the expense of the cryptocurrency ecosystem as a whole. They raise the barrier of entry for new projects trying to gain liquidity, and in so doing they make it extremely difficult for any project that had a reasonably small ICO to get listed.

Listing cryptocurrencies that have independent blockchains does require significantly more development work by the exchange’s team than for platform-based tokens. That being said, the cost of configuring these coins with the DEX does not need to be arbitrarily high.

In those cases, COOPEX’s listing fee will be a function of the applicant’s market cap (circulating supply * current price) and the expected time it will take to install and test the blockchain on the exchange. As a result of this policy, we can be the best cryptocurrency exchange platform for countless projects of all different market cap sizes to increase the tradability of their coin or token.

4. Coin Liquidity & DEXs

It’s important to realize that COOPEX cannot by itself solve the liquidity problem in the greater cryptocurrency market or even for individual projects. Getting listed on crypto exchanges is only part of the liquidity problem, and it’s another matter entirely for the exchanges to have the necessary order matching capabilities to make a coin or token easily tradeable.

With that in mind, we still hope to make an immediate positive impact on the health of the market with our listing policy. It’s reasonable to expect that projects of all sizes - recent ICOs and ERC20 tokens in particular - should be keen to be listed on a DEX that will not charge them unreasonable fees for doing so.

As COOPEX solidifies its reputation as an ethical and secure DEX that positively contributes to the liquidity of the cryptocurrency market, more traders, market makers, and cryptocurrency projects will be enticed to join.


From there, the possibilities for upping the status quo are practically endless. Join us in taking the first steps to making that a reality at coopex.market. Whether you’re a trader, market maker, or part of another cryptocurrency project, we’d love to have you.

 

Read more:

Centralized vs. Decentralized Exchanges

 

posted by Jonathan Downing

View all posts by Jonathan Downing