FILE PHOTO: Smartphone with displayed Binance logo and representation of cryptocurrencies are placed on a keyboard in this illustration taken, June 8, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
NEW YORK: Binance Holdings Ltd has tightened requirements for listing new digital tokens, stepping up efforts to bolster investor protections on its platform.
Crypto projects seeking to list tokens on binance must now agree to a significantly longer so-called “cliff period” during which no coins can be sold, set aside more coins for market makers and make a security deposit, said sources.
The changes started taking effect late last year, they said.
Binance has communicated the changes verbally to participants in token listings and the requirements can vary somewhat between deals. Binance denied asking for a greater share of tokens to be set aside for market makers, saying project teams decide that themselves.
So far the stricter rules don’t appear to have hurt the platform’s share of spot crypto trading, which has started to recover from an almost year-long slide, and binance has widened its lead in listings among major exchanges lately.
Still, executives involved in listings on binance who spoke on condition of anonymity to avoid jeopardising business relationships said the changes threaten to undermine their profitability and make listing new tokens prohibitively onerous.
One of them has verbally complained to binance executives about the tougher requirements.
Binance, which last year agreed to pay a US$4.3bil fine over money-laundering violations, has started putting more emphasis on investor protections than on attracting coin listings, a senior executive said last month.
Exchanges have long been criticised for lax oversight of listings, with instances of crypto projects or market makers selling large amounts of tokens shortly after they begin trading, leaving smaller investors with losses.
“Token listings are a double-edged sword,” Bader Al Kalooti, Binance’s head of Middle East, Africa, Southern Asia and Turkey, said in a February interview.
“Obviously, the more tokens you have the better it is to drive user growth, but at the same time, we’re no longer just prioritising growth over user safety and security.”
A token listing typically involves three main participants: the founders of the crypto project, its main financial backers and market makers responsible for maintaining liquidity.
During the cliff period, a certain share of the total coin supply is locked up in a “smart contract” – a type of software governing crypto transactions.
When the cliff period expires, the smart contract releases the tokens gradually according to a vesting schedule.
Market makers are allocated tokens to support trading, but there are restrictions on withdrawals.
Binance is now requesting projects agree to cliff periods of at least a year, up from no more than six months previously, the people said.
In another change, the exchange is in some cases asking for a greater share of tradable tokens to be set aside for market makers in an effort to ensure adequate liquidity, three of the people said.
“Binance does not impose lock-in periods for projects listed on our exchange,” the company said in a response to questions from Bloomberg.
“Each project is able to independently decide their token vesting schedule.”
The company said it has in place “monthly limits for certain withdrawals,” without specifying.
“A longer vesting schedule fosters deeper commitment in projects, thereby benefiting the users and the overall ecosystem,” Binance said.
Binance confirmed that some projects must agree to make a security deposit before listing tokens.
Such deposits are typically worth a few million dollars, and Binance can keep them in cases where it judges that an issuer hasn’t met its listing conditions. — Bloomberg
