(Bloomberg) -- Binance Holdings Ltd. has tightened requirements for listing new digital tokens, stepping up efforts to bolster investor protections on its platform. 

Crypto projects seeking to list tokens on Binance must now agree to a significantly longer so-called “cliff period” during which no coins can be sold, set aside more coins for market makers and make a security deposit, said people with knowledge of the matter, who asked not to be identified discussing confidential information. The changes started taking effect late last year, the people said. 

Binance has communicated the changes verbally to participants in token listings and the requirements can vary somewhat between deals, the people said. Binance denied asking for a greater share of tokens to be set aside for market makers, saying project teams decide that themselves. 

So far the stricter rules don’t appear to have hurt the platform’s share of spot crypto trading, which has started to recover from an almost yearlong slide, and Binance has widened its lead in listings among major exchanges lately. 

Still, executives involved in listings on Binance who spoke on condition of anonymity to avoid jeopardizing business relationships said the changes threaten to undermine their profitability and make listing new tokens prohibitively onerous. One of them has verbally complained to Binance executives about the tougher requirements. 

Binance, which last year agreed to pay a $4.3 billion US fine over money-laundering violations, has started putting more emphasis on investor protections than on attracting coin listings, a senior executive said last month. 

Exchanges have long been criticized for lax oversight of listings, with instances of crypto projects or market makers selling large amounts of tokens shortly after they begin trading, leaving smaller investors with losses. 

Read: Top Crypto Exchange Binance Spins Off $10 Billion Venture Unit

“Token listings are a double-edged sword,” Bader Al Kalooti, Binance’s head of Middle East, Africa, Southern Asia and Turkey, said in a February interview. “Obviously, the more tokens you have the better it is to drive user growth, but at the same time, we’re no longer just prioritizing growth over user safety and security.”

Cliff Period Extended

A token listing typically involves three main participants: the founders of the crypto project, its main financial backers and market makers responsible for maintaining liquidity.

During the cliff period requested by Binance, a certain share of the total coin supply is locked up in a “smart contract,” according to the people — a type of software governing crypto transactions. When the cliff period expires, the smart contract releases the tokens gradually according to a vesting schedule. Market makers are allocated tokens to support trading, but there are restrictions on withdrawals. 

Binance is now requesting projects agree to cliff periods of at least a year, up from no more than six months previously, the people said. In another change, the exchange is in some cases asking for a greater share of tradable tokens to be set aside for market makers in an effort to ensure adequate liquidity, three of the people said. 

“Binance does not impose lock-in periods for projects listed on our exchange,” the company said in a response to questions from Bloomberg. “Each project is able to independently decide their token vesting schedule.” The company said it has in place “monthly limits for certain withdrawals,” without specifying.  

“A longer vesting schedule fosters deeper commitment in projects, thereby benefiting the users and the overall ecosystem,” Binance said.

Security Deposit

Binance confirmed that some projects must agree to make a security deposit before listing tokens. Such deposits are typically worth a few million dollars, and Binance can keep them in cases where it judges that an issuer hasn’t met its listing conditions, the people said. 

“This deposit is a precautionary measure that is meant to handle extreme situations and primarily safeguards the interests of investors,” Binance said without commenting on the size. 

Rather than set out a new formal set of listing requirements that apply across all deals, Binance has communicated the stricter terms to projects that approach it about listing tokens, according to the people. 

Token listings play an important role in driving trading commissions by increasing overall volumes on an exchange. Binance has extended its lead in coin listings this year, accounting for about 40% of the total across four major marketplaces. The exchange’s native token, BNB, has rallied around 90% year to date.

Chief Executive Officer Richard Teng, who took over from co-founder Changpeng “CZ” Zhao in November, has pledged to bolster compliance and work more closely with regulators around the world. Zhao stepped down as part of the agreement with US agencies, and is awaiting sentencing there. The company has come under fire in several countries in the past year for operating locally without a license, with India going so far as to shut down its website and app there. 

Yi He, who started Binance together with Zhao and has children with him, is overseeing the token listing overhaul, according to the people. 

In early February, she used the X social-media platform to announce a reward of as much as $5 million for information about verified corruption among Binance staffers. In the Chinese-language post, she also said the team overseeing coin listings “will strengthen internal management” and that information leaks may lead to termination. 

Researchers who compared token listings on Binance and rival Coinbase from 2017 to 2021 found that Coinbase used a more selective process, and that first-day returns — while positive on both platforms — were higher on Coinbase. 

While both exchanges listed tokens of projects their venture capital arms had earlier invested in, such coins tended to have “lower technology development activities” than other listings on Binance, according to the paper published last month by researchers at four universities. That finding wasn’t replicated for Coinbase listings, they said. 

--With assistance from Sidhartha Shukla, Emily Nicolle and Ben Bartenstein.

(Moved Binance denial to third paragraph, and added detail about the rally in BNB in 17th paragraph)

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