Just under two weeks ago, Binance announced one of its regular rounds of token delistings. The official Binance announcement gave no specific reason for the delisting of Cloak Coin (CLOAK), Modum (MOD), SALT, Substratum (SUB), or WINGS, instead simply listing “a variety of factors” which it usually considers. While its not clear which of these seven factors, ranging from “Commitment of team to project” to “Evidence of unethical / fraudulent conduct,” each of the five delisted projects violated, the results have been devastating. The price of all five projects dropped like a stone following the announcement, with an average 56% decrease in the five tokens’ value since February 15.
The devastating effect of delisting shows the enormous power Binance has in the crypto space. We previously took an in-depth look at how Binance established itself as the dominant cryptocurrency exchange, and how new ventures such as a Binance DEX, Euro-to-crypto fiat on-ramp, and the Binance Labs ICO incubator are helping Binance shore up its dominance. Getting a token listed on Binance is often see as a core goal of many crypto projects, as no other exchange matches its reputation and trading volume. But as the collapse of the five recently-delisted tokens shows, staying on Binance is as important as getting there.
Other exchanges have followed Binance’s lead, with Korean exchange Upbit posting a Korean-language announcement citing low use of Wings’ platform and an SEC investigation into SALT as reasons it was mulling a similar delisting. There is speculation that Bittrex and other exchanges are likely to follow.
So why have these five projects been targeted for delisting by Binance? And is Binance justified in using its incredibly powerful market position to deal a heavy blow to these projects’ image and viability? And if the delisting is justified, should these projects have ever been listed on Binance in the first place?
The Fallen Five: CLOAK, MOD, SALT, SUB, & WINGS
The five affected projects each target different crypto niches: Cloak is a privacy coin, Modum is a supply chain management solution, Salt is a crypto lending service, Substratum is a distributed computing framework for decentralized web services, and Wings is a platform for evaluating varied start-up projects. But if there is one common thread running between them, it’s that all are quite explicit in allowing token holders to earn funds for holding them – a fact which, in Salt’s case, has not gone unnoticed by the United States’ Securities and Exchange Commission (SEC).
Cloak Coin’s official website describes it as “a pure proof-of-stake (PoS) cryptocurrency that offers an interest of 6% per annum on staked coins.” Modum offers token holders a share of profits in exchange for voting on the project’s development milestones. SALT’s website describes the lending platform as a “smarter way to hold and leverage your crypto for cash,” allowing participants to collaterize their crypto assets “while providing you with the cash you want today.” Substratum’s website promises that everyone “who runs a Substratum Node gets paid via cryptocurrency each time they serve content.” Wings is a little more subtle in offering a security-style incentive to token holders, though its whitepaper explains that “proposal submitters and the community have the ability to earn rewards for the creation and forecasting of new proposals.”
The economic models behind the five delisted tokens made a lot of sense to a lot of people at a time when ICOs seemed like a license to print money. Four of the five projects generated tremendous funds at ICO, generating a total of $77.4 million in ICO funding between November 2016 and September 2017. Wings completed its ICO before crypto’s 2017 bull run truly exploded, selling off $1.7 million in tokens by January 2017. Modum and Substratum each raised between $13 and $14 million in the frenzied ICO climate of September 2017. Salt’s ICO was more lucrative than the other projects combined, generating a total of $48.5 million. Cloak Coin was the only project not to operate an ICO, instead making its first 496 coins minable, before switching to a proof-of-stake consensus mechanism and rewarding holders with a 6% annual staking dividend.
SALT’s Rise & Fall
Taking a look back at the hype that surrounded Salt’s launch, it’s easy to see why its ICO proved so successful. Salt’s lending platform valued each SALT token at $27.50, while it traded on exchanges at far less than this. This created a ludicrous arbitrage opportunity, where loans could be taken out on the platform using Bitcoin or another cryptocurrency as collateral, then instantly paid back using tokens bought at a lower price on other exchanges. But as word of this exploit spread, Salt acted to enforce strict rules on repayment that mean loans could not be repaid early and were subject to a fixed 6% interest rate.
SALT tokens never came close to reaching the $27.50 the project valued them at. SALT peaked at $17.65 on December 29, 2017 and then began a steep and almost-certainly terminal decline. SALT hasn’t been worth more than $1 since July 2018. This final dip below the dollar mark followed weeks of silence on the platform’s social media channels, sparking rumors of an exit scam. Articles such as this June 2018 piece from Blockonomi painted a bleak picture of a project that had seemingly been given up on. Several Reddit posts outlined evidence pointing towards a dead project, such as this one from /u/remotelyfun and another from /u/NachoKing.
In November 2018, The Wall Street journal reported that the SEC was investigating Salt’s almost $50 million ICO and ShapeShift AG chief executive Erik Voorhees role in promoting it. This sent the SALT token price even lower, from just under $0.50 when the article was published to $0.20 by mid-December.
All this would suggest that Binance was right to delist SALT, and that if anything, it should have delisted the token sooner. But this view was not shared by SALT CEO, Interim President, & Chief Technology Officer Bill Sinclair, who took to Medium to reaffirm the team behind Salt’s commitment to the project. Sinclair also lambasted Binance for “never responsibly [contacting[ SALT regarding any due diligence inquiries.”
Sinclair’s multiple job titles is a result of him taking on the duties of former CEO Shawn Owen, who abruptly left the project at the height of the exit scam rumors in July 2018. As this article from Use the Bitcoin published at the time shows, one of Owen’s final acts as CEO was to decline an offer to buy the company from rival lending platform Nexo. After taking over from Owens, Sinclair was quick to emphasize Salt’s growth and its potential to continue growing.
But the Binance delisting may well be the final blow for the troubled project. Coupled with the SEC investigation into its ICO, its very difficult to imagine Salt recovering from this point. SALT’s current price of $0.16 per token is the lowest since it launched, and the decline doesn’t seem to be halting any time soon.
The Power of a Binance Listing
The immense and immediate impact of Binance’s decision to delist on the price of the five affected tokens shows the incredible power the exchange holds within the cryptocurrency space. While there are compelling reasons for their decision to delist these tokens, it does raise the question of why they ever ended up on the platform in the first place.
Getting listed on Binance exposes a project to the exchange’s enormous trading volume, usually driving up a token’s price and lending the project legitimacy. But such benefits may not come cheap, with Expanse co-founder Christopher Franko claiming in August 2018 that Binance had asked for 400 BTC to list their token. Binance disputed Franko’s claims, but Franko took to Twitter to share an email that Binance claimed had been spoofed.
So he is trying to say it was a spoofed email. But um.. it came from https://t.co/bTYQp6cgHK so either…
1. He is lying to save face.
2. someone has hacked their servers and sending emails out from it.
3. he has a rogue employee
I literally have nothing to gain from this.. pic.twitter.com/ubfyuxREEs
— Christopher Franko 🧐 (@FrankoCurrency) August 9, 2018
If true, a Binance listing would have cost around $3 million at the time Franko’s claims were made. Just over a year after Franko’s claims were publicized, Binance announced it would replace listing fees with a pay-what-you-want charity donation. The new fee structure was explained in an official blog post:
"Starting immediately, and going forward, we will make all listing fees transparent and donate 100% of them to charity… Project teams will still propose the number they would like to provide for a "listing fee,” or now more appropriately called a "donation.” Binance will not dictate a number, nor is there a minimum required listing fee… A large donation does not guarantee or in any way influence the outcome of our listing review process.”
While the alleged 400 BTC listing fees would certainly have been very lucrative for Binance, the exchange is in a position where this is a drop in the ocean compared to the amount generated through trading fees. According to analysis from The Block Crypto, Binance made $446 million in profit in 2018. While this fell short of founder CZ’s earlier predictions of $1 billion in profit, it was enough to make Binance more profitable than leading fiat-to-crypto gateway Coinbase. A few months before these figures were released, The Bitcoinist reported that Binance’s earnings in the first eight months of 2018 were similar to those of Nasdaq and Deutsche Bank, despite Binance having only 200 employees, compared to 4,500 for Nasdaq and 100,000 for Deutsche Bank.
Binance has recently introduced its own ICO incubator, Binance Launchpad. As we reported, the new venture has seen very successful launches for the Tron-backed BitTorrent Token and, most recently, Fetch.AI. Binance’s pre-spring cleaning of the five delisted tokens makes sense in the context of Binance wishing to deepen its reputation as a trusted seal of approval within the crypto space.
Another way Binance has sought to further enhance its trusted reputation is through the introduction of a ‘V Label’ certification – commonly referred to as Binance’s ‘Gold Label.’ But, controversially, one of the delisted projects was also a recipient of Binance’s V Label.
These projects officially joined Binance info’s transparency initiative and got verified with a V label: @PundiXLabs @RequestNetwork @CloakCoin @_poetproject @MithrilOfficial @cryptocom @VibeHubVR
Apply to join Binance Info V Label: https://t.co/dx58GhB71I pic.twitter.com/R3UCqqcRMp
— Binance Info (@Binance_Info) December 10, 2018
How Can a ‘Gold Label’ Project Get Delisted?
The biggest negative backlash to Binance’s delistings has centered on Cloak Coin’s status as a V Label project. In Binance’s defense, much of this negativity stems from a misunderstanding of what the V Label actually means. While many take the V Label to be a mark of a project’s quality, Binance clarified on Medium back in December that this isn’t what the V Label signifies:
"The V Label badge received by projects means the information and content shown on the project’s profile page on Binance Info is verified to be maintained by the project team itself…”
"…Again, the V Label only certifies that the project team itself is updating and maintaining its information on Binance Info. Binance Info makes no judgement on the projects or the content uploaded, and a V Label verification does not imply an endorsement by Binance Info.”
The V Label is essentially Binance’s version of the Twitter blue tick. While many see the blue tick as a status symbol exclusively assigned to celebrities, the barrier to receiving it is probably a lot lower than most would assume. This is probably a bit of a branding error on Binance’s part, as the ‘Gold Label’ tag – which Binance uses itself, as in the above Medium post – seems to imply quality.
Cloak Coin’s project manager Stefan Kender referenced the project’s V Label status in his response to the delisting:
"The news on Friday about Cloak being delisted from Binance has emotionally shocked me… [In] particular, it is perplexing to me that this has occurred when CloakCoin is a V-label verified project on Binance Info.”
Kender goes on to address each of Binance’s seven criteria for delisting and explains why he does not believe Cloak Coin has fallen afoul of any of them. Kender also explains that Cloak Coin’s team have received no explanation from Binance regarding the motivations for delisting their token. Justin Tubb of Substratum shared a similar point-by-point rebuttal to SUB’s delisting.
Any Way Back for the Delisted Projects?
While being listed on Binance is seen as a big achievement within the crypto space, getting delisted is one of the worst things that can happen to a project. The collapse of each of the five delisted tokens’ value is accompanied by a cloud of negativity than will be almost impossible to lift.
The last raft of delisted tokens saw a similar immediate drop in value, followed by a continuous decline that none has been able to reverse. Bytecoin was at above $0.002 prior to its October 2018 delisting and now trades at around $0.0006. Iconomi has gone from around $0.36 to $0.10, ChatCoin from $0.23 to less than $0.03, and Triggers from $0.30 to $0.11.
Debate over whether each projects deserved delisting will continue, but no one can argue with the delisting’s catastrophic effects.