How Tokens Die: Binance Is Delisting 5 Troubled Projects
02.15.2019

Early this morning U.S. time, Binance announced it will delist five crypto tokens: CloakCoin, Modum, SALT, Substratum, and Wings. All except for CloakCoin were issued in fundraising ICOs. The delistings will be effective February 22, giving holders another week to sell their holdings if they wish. Withdrawals of the tokens will be available until May 22.

Binance is consistently one of the top five cryptocurrency exchanges by volume, and it has a strong reputation among users and across the industry. The delistings will have major ongoing impacts, since they make the delisted projects much harder to invest in: According to CoinMarketCap, Binance made up roughly 50 percent of trading volume in WINGS, SALT, and CloakCoin, and over 95 percent of volume for Substratum and Modum. All five coins saw selloffs after the announcement, with the market price for CloakCoin, Substratum, and Modum dropping by 25 to 30 percent within hours.

For delisted projects that are still active, those declines could signal a death spiral, since many ICO projects rely on holdings in their own currency to fund continued development. Reduced markets for the projects’ token reserves, and the delisting’s strong signal of their unviability, greatly increases the likelihood that they will simply fade away.

That’s rough for any speculators still hanging on to these tokens, but for the blockchain industry as a whole, the delistings are a clear positive sign: Several of the delisted projects appear to be dead or dying, to have behaved unethically or illegally, or to have been outright scams. Their collapse (much like the bankruptcy of the weakest internet startups after the bursting of the dot-com bubble) will redirect energy and resources to the strongest players in the ecosystem.

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Binance did not cite specific reasons for delisting each project, but it did list some of the factors it considers when making such decisions. Those include “level and quality of development activity” and “level of public communication,” but the most important factors from a big-picture perspective may be the last two: “Evidence of unethical/fraudulent conduct” and a lack of “Contribution to a healthy and sustainable crypto ecosystem.”

Those standards are most obviously problematic for SALT, a “crypto lending platform” that reportedly came under SEC investigation in November. That lent some credence to earlier community allegations that the project was a scam.

Similarly, there has been widespread speculation that Substratum’s delisting could be linked to various questionable practices. Those include the development team’s plan to day-trade using funds raised through not just one, but two ICOs. That unique strategy was revealed in December, apparently in response to the project running low on funds.

WINGS, some sort of ICO for evaluating other ICOs, already seems near-death, its GitHub repository showing no new code for nearly three weeks, and extremely intermittent updates before that. Modum, an apparently fairly well-regarded though low-profile supply-chain focused project, explicitly touted profit-sharing as a feature of its MOD token, making it a self-admitted unregistered security and a gigantic target for SEC enforcement.

CloakCoin is an interesting case, as it began life as a fairly obvious scam, but was reportedly taken over by community members and revamped as an honest endeavor in 2016. It’s hard to cite an immediately obvious present-day reason for the delisting.

To varying degrees, then, as The Block’s Larry Cermak pointed out this morning, these coins represent a reputational and even legal risk for Binance. There will likely be more delistings to come, and some will be even more painful than today’s. Some may even be unjustified, and hurt real projects. But the shutdown of the global ICO casino (or at least, its migration to ever-shadier exchanges where only the most foolhardy speculators dare to tread) will ultimately benefit the sector, clearing out garbage projects and refocusing energy on those with potential beyond lining their founders’ pockets.