Why it’s Important: Binance Transparency and Charity

The Facts

In a crypto industry first, Binance “will make all listing fees transparent and donate 100% of them to charity.”

It’s a strategic move

There are plenty of reports that interest in ICOs has plummeted. The days where Binance could potentially charge millions for listing on its trading venue are likely over as ICOs are able to raise less money month on month.


However, the measures it has implemented regarding listing fees are still relevant from a structural standpoint.

Why this level of transparency is important

As we cover in a Security Token 101 “From ICO to STO” article, the ICO industry can be best defined by a series of misaligned incentives: between blockchain projects, “investors,” consumers, and the wider crypto ecosystem.


Transparency helps cure the ailment of misaligned incentives. 
We know that Binance’s stated mission is to ensure that the coins listed on its exchange reflect “projects [that] maintain a high standard of quality. In the event a coin or token falls below this quality standard, it will be subject to further review and potentially delisted.”


Let’s assume that users of Binance exchange want to trade tokens that will carry value in the long term, rather than surging in value and crashing to obscurity.


Then a fundamental way to ensure Binance is adhering to its mission and delivering the desired product to its users is to be transparent about how it charges coins to list on its exchange.


Clearly, if Binance neither reports the listing fees it charges nor the bids from projects, it is very likely that the exchange would prioritize listing fees over quality in at least some of the cases it considers.


That would be detrimental to both its own stated mission and to its users. Thus, the exchange’s transparency around listing fees helps to align Binance’s internal goals with the desires of its customers.

Why listing fees as charitable donations is as important as transparency

It is about reinforcing credibility. Transparency is not enough to align incentives if there is no enforcement mechanism.


We are all aware that some companies can have a tendency to say one thing publicly, but do another in private. In fact, this phenomenon was the
crux of the 2007 mortgage meltdown that ravaged the markets.


Ratings agencies such as Standard & Poor’s do
publish the fees that they charge.
 However, despite this level of transparency, structural issues could still remain:

 

  • Fees charged to clients are variable: ratings agencies, for example, could charge $100,000 or 6.75 basis points per transaction, whichever is higher. This means that some clients will be charged more than others.

 

  • How do clients select a rating agency? Well, they are incentivized to pick whatever agency will give them the best rating by looking at past ratings of similar companies or perhaps even off-the-record discussion



Conclusion:
 Under this incentives scheme, clients will pay the higher for better ratings. That means rating agencies will give better ratings for higher pay.


What would disrupt these adverse incentives?

If ratings agencies didn’t charge a fee for their ratings or if they gave all their ratings fees to charities.


That is what Binance is doing

As a result, there is less risk of Binance internally instituting a program where employees get commission based off listing fees. Obviously such a commission scheme would incentivize employees to disregard project quality and prioritize listing fees. That would not be good for an exchange that wants to promote quality blockchain projects.


The Takeaway

This is called “putting your money where your mouth is”.  We at STN hope that this policy of listing fees as charitable donations will extend to the security token trading venue that Binance is planning for development. That would really be something.

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