Is it still worth listing your token a CEX?
With the proliferation and growing popularity of Decentralized Exchanges (DEXs), we often get asked by our clients if it’s still worth the expense and hassle of listing their project on a Centralized Exchange (CEX). Listing on a CEX is a costly and time consuming endeavor but return on investment can far outweigh the capital outlay. So our answer is often yes, but often that recommendation is steered by the specific venue the client is considering.
The first benefit projects get from listing on a top Tier 2 or any Tier 1 CEX is market validation. Unlike DEXs, where anyone can create a liquidity pool permissionless, top tier exchanges will do serious due diligence on the projects they list and will often require that these projects work with a market maker to ensure a healthy and well maintained environment for their user base. These standards are enforced by different types of KPIs built into the listing agreement with newly onboarded projects. Thus by listing on a credible CEX the project earns a rubber stamp of approval in the minds of many crypto market participants.
The second benefit is the most obvious one. When listed on a CEX the project gains access to a new pool of liquidity and market participants. Some crypto participants aren’t prepared or comfortable with using Web3 for their transactions and would rather have custody handled by a central authority. One important area of friction that Ethereum users can experience on DEXs are high network transaction fees. On a large CEX access to new eyeballs can be substantial and even in the millions of users.
In addition to the aforementioned benefits to the project, listing on both a DEX and CEX allows Kairon Labs as market makers to create more value for the projects we work with by implementing the following;
Arbitrage is when there is a price difference between the same asset (in this case your token) on different markets (in this case the CEX and the DEX). There are a number of different strategies we can implement to prevent or take advantage of arbitrage opportunities.
Preventing arbitrage: This boils down to creating competitive pricing across multiple markets. How to achieve that? The answer is by identifying the dominant market that dictates general price discovery and quoting secondary trading venues in line with that pricing. We create inertia and a high standard of liquidity by ensuring that there is a small cross market spread. For a more detailed explanation of how we do this you can see this short animation. https://www.youtube.com/watch?v=w6K4cvC-iIE
Profiting from arbitrage: Our algorithm can spot opportunities for arbitrage and automatically execute them by buying on one exchange and selling on another. Thus profiting from the existing arbitrage opportunities.
Creating opportunities for arbitrage: In the event that the project wants to increase organic volume, we can create opportunities for arbitrage so traders will be incentivized to buy on one exchange and sell on another. The success of this strategy is dependent upon the project garnering organic interest from 3rd party market participants.
In addition to arbitrage we can also engage in directional trading by placing limit orders on CEXs (and DEXs) which allow us to automatically buy our clients tokens at predetermined price points and sell them at another predetermined price point. This helps increase profits and create and maintain a healthy price range.
In conclusion, although the initial listing fee and capital required to maintain a healthy market on a top tier CEX can be substantial, it is a necessary step in the road to mainstreaming crypto projects that are seeking to grow their community and organically increase their market capitalization.
Do reach out if you’d like our team to look into listing your project on centralized exchanges!