We’ve done some sleuthing on the crypto rumor mill, from Telegram groups to whispered numbers between entrepreneurs. It sounds like the market price to list a crypto token on an exchange is $1 million for a reasonably regarded token, to $3 million for an opportunity to get quick liquidity. We don’t know these numbers with certainty, but suspect the order of magnitude to be roughly in line with today’s reality. In comparison, according to Autonomous partner Vincent Hung, listing fees on traditional equity exchanges are about $125-300k, with annual fees of $100-500k to remain listed. And that is for fully registered securities that have gone through an IPO process and are likely generating meaningful cash flow via operating businesses.
This implies an odd mechanic in today’s long tail of the crypto markets. First, you sell non-dilutive digital assets that are in many ways just free funding. You owe nothing to your utility token buyers by law, no more than a Kickstarter campaign doing its best to deliver a product. Only Internet reputation reigns here. Second, you overfund the project by a factor of 5-10x relative to early stage Fintech. While many Bitcoin maximalists may have a philosophical preference for crypto gold, tech companies, for better or worse are still embedded in fiat economies. ICO fund-raisings come with an illiquidity premium (can’t find a bank), a block conversion premium (good luck selling your $5mm of ETH for USD), and a regulatory premium (hope your jurisdiction is permissive), among other handicaps. We think these will dissolve over time, but are definitional to the space currently.
And third, ICO projects are now expected by buyers to get liquidity on the crypto exchanges. There is a natural rank order for these exchanges — sometimes a token will need to be listed on a small unknown one before making it up the food chain to an exchange with bigger volume. Fiat off/on ramps are king. These listings are seen as important and good for early supporters, even though it does lead to immediate selling action of tokens representing projects that likely have no production software. Thus the $1mm fee on the backend to the exchange, since ICOs have that buffer built into the raise amount. And on the front-end, ICOs pay out 5% to advisors, not unlike the 3-8% in fees that go out to investment bankers in IPOs. But ICOs also have to pay out bounties and other marketing expenses, since in large part the process is self-run.
As a result, we see a bifurcation in the early crypto markets. On the one hand, there’s a known path to liquidity straight from idea that we’ve just described here. It costs “other people’s money” to startups, so they are incentivized to do it, but it is in many ways expensive, and benefits the Wild West of crypto capital markets infrastructure providers. On the other hand, well connected teams with traction or reputation can skip ICO entirely and go the private sale route. See Telegram, raising now over $1.7b, and perhaps even outraising the endless $1b+ EOS public token sale. We have such complexity in traditional equity markets, so it should be no surprise an analog is developing in crypto.