Delisting is the process or act of removing an asset, stock or cryptocurrency from an exchange.
The Long Explanation
Listing a project on an exchange makes it available for trading on the exchange. A lot of steps are followed before a project is listed, including the provision of liquidity and confirmation that the project meets the exchange’s listing standards.
Delisting, on the other hand, is the removal from an exchange or marketplace.
This could mean as simple as a NFT owner removing their listed NFT from the Opensea and thereby reducing the available tokens up for sale. Traders often tell others to delist their NFT in hopes of driving down supply of available NFTs in a particular collection – in hopes of increasing its value.
Or in a more serious manner, an entire project or cryptocurrency is removed from an exchange platform’s trading zone.
There are a wide variety of factors that could lead to the delisting of a project. The project team, for instance, may request the project is delisted as they seek to discontinue the project.
But delisting could also be initiated by the cryptocurrency exchange if they deem that a project no longer meets their listing standards. Some of the factors that could lead to the delisting of a project by an exchange include, include:
- Poor trading activity reflected in low trading volume or liquidity
- Regulatory uncertainty and changes
- Instability/insecurity of the project’s network or smart contract
- Lack of commitment to the project by the project team
- Detection of security vulnerability or technical ambiguity in the coin’s network
- Confirmation of fraudulent and unethical behavior by the project team
- General non-adherence to exchange listing requirements such as due diligence requests
- Any other behavior that is deemed destructive to successful business-to-customer interactions
Designed as a means of protecting the market from substandard – even fraudulent – projects, delisting is an important control mechanism for exchanges. It helps decrease systemic risks associated with the crypto market, and safeguards the investments of its users.
Delisted projects, however, often suffer damaging consequences – especially when they’re delisted from large exchanges. The most obvious consequence is usually seen in the price of the token, which typically tumbles following the delisting announcement.
The grace period given by exchanges between the delisting announcement and the actual delisting is exploited by investors scrambling to exit the market. By the end of the period, the project may lose between 20% and 25% of its token value.
Considering its impact on the token’s price, delisting clearly impacts the credibility of a project before the public. It may also lead to a decrease in the token’s liquidity and trading volume, further reducing the appeal of the token.
