Substratum Delisted From Binance, KuCoin–Again Raising Alarm Bells and Questions For ICO Investors
February 16, 2019 by Paul de Havilland
With Substratum delisted from Binance, it becomes one of a five-coin cull of projects that do not meet the exchange’s standards. Yet again, this serves as a reminder to those considering investing in ICOs to do their due diligence.
Also read: Fight or Flight? How Laws and a Lack of Trust Affect Bitcoin Trading
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Substratum Delisted From Binance, Among Five-Coin Cull
Binance informed customers on February 15th that it would be delisting trading support for SUB, CLOAK, MOD, SALT, and WINGS by the 22nd, with customers given a further three months to withdraw them before they vanished from the trading platform. Substratum plummeted 38 percent on the news. Almost 97 percent of SUB trading volume was on Binance.
The Substratum team has tweeted an acknowledgement of the news to its users, in an effort to assuage investors it will continue to operate:
Substratum became aware of our Binance delisting Feb 15. We have reached out to Binance for explanation. As soon as we have more information we will make it available. Development of Substratum continues and we are moving forward with monetization, security, and usability.
— Substratum (@SubstratumNet) February 15, 2019
While Binance listed a number of reasons it makes these decisions, including a lack of communication and lack of development by the team behind projects, the specifics are not spelled out in detail. But was Substratum delisted from Binance for good reason?
Substratum Team Accused of Unfit Behavior
One early investor took to Twitter to describe how the team behind Substratum began using the funds raised in their ICO to trade cryptos, and engaged in pump and dump schemes of their own coin. Its KuCoin delisting served as an early warning sign to him.
I was invested in them since ICO and kept faith in them untill recently, I mean, they have a solid working product! But then everything started falling apart few months back; or at least #fud got to them; trading ICO funds, P&D, KuCoin delisting and now also Binance delisting.
— ▪DION▪ (@Di0nysos_) February 15, 2019
Another crypto twitter identity claimed the team announced last December their plans to trade their ICO funds, rather than, of course, use them to develop the project they sold tokens to raise money for. (The Substratum team asserts that the right to do that is laid out in its whitepaper.)
If you didn’t dump your $SUB (if you owned any in the first place) when the founders came out and said THEY WERE GOING TO TRADE THEIR ICO FUNDS
iDK what to tell you man
— Moon Overlord (@MoonOverlord) February 15, 2019
And there is one tweet too many for these to be entirely baseless accusations. As another popular cryptotwitter identity said “Let’s all remind ourselves of the time $SUB decided to day trade the rest of their ICO funds and shorted the $80 bottom of ETH.” Apparently they based their trading strategy on Bollinger bands.
Let’s all remind ourselves of the time $SUB decided to day trade the rest of their ICO funds and shorted the $80 bottom of ETH.
Only in crypto. https://t.co/cmNmoS1sXT
— $carface (@TraderScarface) February 15, 2019
Fiduciary Duty and the Risks of Investing in ICOs
The Substratum ICO raised around $17 million USD. Initial Coin Offerings offer their investors no equity, no protections, and no actual decision-making powers. But insofar as a whitepaper outlines a roadmap of sorts regarding the issuers’ intentions, investors do at least have some civil law protections if the issuers take no action to follow through with those purported intentions. Or do they?
To enforce these limited rights you need to be in the same jurisdiction as the ICO or afford to get yourself to it. You cannot sue who you cannot find. Generally speaking, however, ICO investors have practically no rights or recourse should issuers decide to abandon the project and go on a cocaine and hooker-fueled bender in Las Vegas.
Hence, the SEC doesn’t like them at all and wants to protect mom-and-pop investors from them.
The Issue of Investor Rights
During an IPO, laws hold a shareholder-elected board responsible for oversight of a corporation’s management. Public companies are also subject–by law–to external audits, public disclosures, rules put in place by the exchanges they operate on, as well as the fiduciary duties of care and loyalty.
Consider venture capitalists investing in startups. Ordinarily, venture capitalists are offered some sort of documented protections, with the right to approve or disapprove of certain significant actions, anti-dilution protection, and liquidity rights.
Investments in an LLC, even when made at arms length by a non-managing investor like a hedge fund, still give investors significant contractual rights to information and formal capital return structures.
ICO investors probably assume they have a right to at least common decency on the part of their issuers, unless their issuers have criminal intent. But the fact remains, investing in ICOs generally confers among token holders no voting rights, no oversight over management’s activities, no formal anti-dilution protection, no binding “best effort” commitment, no limits on compensation or limits on the nature of the expenditure of funds, no audits, and no transparency in relation to concentration of ownership.
Substratum Delisted From Binance, ICO Money Learning the Hard Way
Billions of dollars of investor money has learned the hard way that securities regulations are in place for a reason. Whether any mismanagement on Substratum’s part took place or not, investors have little recourse to legal action.
It may not be right or fair that one exchange’s arbitrary decision to delist a token can be a nail in the coffin of a project. And DEXs may well prove to be the answer to that. But the brief and inglorious history of ICOs suggests an exchange’s decision to delist a token is not often the first, though it may be the final, nail.
Sound off below. Was Substratum delisted from Binance fairly?
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