Exchanges are one of the most significant threats to innovation in blockchain

I’m primarily interested in how blockchain can disrupt existing business models or create new types of industries completely. It’s exciting seeing people try to find a change of approach to different markets (supply chain, authentication, advertising, health, etc.) and there’s some where I simply don’t understand how people can think it’s going to be a successful approach at all. However, I’m probably going to be wrong and some of those, and will be happy to be proved so if it results in greater efficiencies.

What worries me, however, is the the limitation for innovation caused by the major bottleneck with exchanges. Currently there are just SO MANY tokensales that it will be simply impossible for these businesses to all be listed on major exchanges, those with enough liquidity to satisfy . This is going to mean a couple of things:

• Exchanges will face increased applications from recently completed ICO’s whose communities typically scream for exchanges constantly after completing. This increased demand will result in exchanges raising the price that they require from ICO’s for listing (I’ve seen quotes for $300k+ from HitBTC as an example).

• The effect of this will be that exchanges running smaller ICO’s will not be able to spare the capital to pay for listing on bigger exchanges. This in turn will mean their communities become extremely negative and cause difficulty for the businesses that are running them.

• Because people investing in ICO’s will quickly learn that investing in undercapitalised tokensales massively increases the chance that they’ll be unable to trade their tokens, large swathes of people won’t invest in small token sales (unless they believe in the idea in some way).

The problems that I see coming from this are:

• Running a tokensale becomes a capital intensive activity requiring publicity, marketings and pre-sale agreements to get on exchanges to alleviate these fears. Established businesses will be most likely able to do this, or startups that have given up equity in order to fundraise, to then run an ICO. This then creates another risk of how the equity holders could sell the company in future leaving tokenholders in unknown territory.

• Innovative ideas that are run by smart people, who don’t understand marketing will go unfunded. And where they get funded to build a product, they probably won’t be capitalised to achieve one of the major exchanges.

• The crypto market for traders becomes dominated by existing cryptos as the barrier to entry becomes so much higher.

• Decentralised exchanges will not impact this. EtherDelta currently has hundreds of tokens and will have thousands. Further decentralised exchanges will have more than just ERC20 tokens so face even more. If there’s a qualifying set of conditions to get on to these exchanges they become no longer decentralised. Someone will make these rules, and these rules will then decide which companies achieve or don’t

I’m not sure that I have the answer to these questions, it may simply just be a direction the market goes. But some things I might spend some more time considering include:

• Categorised exchanges (supply chain, health, blockchain platforms, etc.), or categories within exchanges

• Peer lead crypto investment groups. Meaning the advisors for leading blockchain groups run a crypto seed fund that invests in innovative, experimental new ideas funded by some of the major exchanges (capturing the dust from all transactions) or blockchain cryptos so inclined. This puts capital into the hands of the bright sparks who’ve ideas but can’t run marketing.

• Some other ideas I’ll probably think up in future.

Overall I think there’s a few things to consider here, depending on your interest at the time of reading this:

Traders - Have got to start thinking about whether tokensales are going to be well enough capitalised to get listed on exchanges. They’ve got to also factor in the security/utility token risk on top of this.

Techies - Have got to find a way to influence the current market enough to solve the problem of having the market dominated by rich exchanges that have limited interest in driving tech forward.