Delisting

Delisting is the act or process of removing digital assets, securities, or stocks from a trading exchange.

What Is Delisting in Crypto?

Delisting refers to the removal of cryptocurrency assets from an exchange’s listing. This can either be voluntary or involuntary. 

For instance, the project team can request to withdraw its assets, or the exchange can involuntarily delist the token if the project violates or fails to uphold the exchange’s listing standards.

When a token is delisted, the exchange typically removes all its trading pairs. This means that users can no longer buy, sell, or trade the token on the exchange. However, the token holders are given a specified period to decide what to do with their holdings before the exchange completely ceases supporting the token. During this timeframe, users can:

• Swap the token for one that is supported on the exchange,
• Withdraw the crypto to an external wallet or another exchange where it is still active, or
• Sell the token on an over-the-counter (OTC) market.

If the holder fails to sell or withdraw the delisted token, the exchange can automatically convert it to a stablecoin in the user’s wallet. Alternatively, the exchange may confiscate it, leaving the user with no rights to recover the funds.

What Factors Contribute to Delisting Tokens?

Traditionally, company shares are delisted from an exchange when the company dissolves, declares bankruptcy, no longer meets the exchange’s listing requirements, or is privatized. However, suspending cryptocurrency tokens from trading activities is often due to various reasons. This includes:

1. Low liquidity and trading volume – The low trading activity associated with low-liquidity assets can create challenges in maintaining an efficient trading environment. As a result of low trading volume, an exchange may decide to remove a token from its listings. 
2. Regulatory uncertainties – A cryptocurrency can be removed from an exchange finds it is non-compliant with local or international regulations.
3. Security risks – Networks or smart contracts with exploitable bugs or technical ambiguity threaten the safety of user funds and the exchange’s reputation. Thus, tokens facing security threats face delisting actions.
4. Absence of protocol development – Protocols that lack progress or community involvement lose credibility and risk the project token being delisted.
5. Non-existent business-to-customer interaction – Project teams are required to maintain a certain level of communication with the public and can face delisting if they don’t.
6. Proof of market manipulation – If a crypto project is suspected of engaging in activities regarded as fraudulent, unethical, or illegal, such as market manipulation, insider trading, or pump-and-dump schemes, the exchange can delist the project’s token.

It’s important to note that only centralized exchanges (CEX) can fully delist a token. In contrast, a decentralized exchange (DEX) can delist a token from its frontend user interface. In this case, the token can still be traded manually using the token’s smart contract address as long as there is liquidity.