June 24, 2022

Business Guide For Starting a Cryptocurrency Exchange

Outdated banking practices and financial market instability, fuel the popularity of Cryptocurrencies while paving the way for mass adoption of Blockchain based technologies.

Worldwide adoption of Cryptocurrencies is on the rise. It's no longer the evangelical HODL'ers and traders who are investing and speculating into an asset class only they believe in. Today it's your every day person, your neighbor, your co-worker, your family member, you! More and more innovative services incorporate Cryptocurrencies to solve every day problems of the existing financial services. These use cases are catering to more segments of the worldwide population, steadily improving public opinion and driving this adoption of Cryptocurrencies.

Inspired by the likes of Binance and Coinbase, Start-ups and established FinTech companies are making their moves to gain a piece of the growing marketplace. Driven by government regulations and user demand for various features, these newcomers are improving the existing services, while finding their foothold in the midst of these titans. Many of these businesses are incorporating Fiat and Cryptocurrency Trading functionality as a part of their existing financial services. Others, deploy stand alone Exchange Platforms and build their unique features to satisfy the needs of their user base.

User driven demand and desire to capture a piece of the marketplace is fueling innovation in this sector of FinTech, as Cryptocurrency and Fiat Trading Platforms continue to evolve beyond the classic concept of trading. Their road to success is paved with unique add-ons and user requested services. From referral programs, trading competitions, bot integrations, simple trading interfaces, increased security and the like, to remittance, gambling, advanced order types and margin trading and other advanced order types. In today's reality, these just scratch the surface and adoption is still in its early stages for most of the world's population.

If you're reading this article, it's very likely that you already understand why it makes sense to be a part of this growing segment of FinTech, and came here to better understand how to establish your business. So let's get to the point of what should you consider before starting a Digital Asset Exchange?

First step is to ask yourself the right questions and thoroughly review your answers, to validate your business idea. Here's where to start:

  • Do you need a Cryptocurrency Exchange Platform to be in your portfolio of Financial Service Products?
  • Would some of the functionality of a Cryptocurreny Exchange Platform satisfy your business needs?
  • Is it a stand alone product or an add-on to an existing Financial Service?
  • What will set your Cryptocurrency Exchange Platform from the competition and to attract users?
  • Who is your typical user? Professional trader? Novice trader? Crypto Investor?
  • Do you have or plan to develop a cutting edge innovative feature?
  • Is it a unique feature for your specific market and users?
  • Does this feature already exist in a different market?
  • Do you have an existing tech team? Do you plan on hiring one if you do not?

What services will set your Exchange Platform from the competition, or satisfy the specific demand of your user base.

  • Have you put together your list of features? if not, it is time to take notes from this article or visit your 'competitor exchange' to start making this list.
  • What cryptocurrencies will your exchange wallet support?
  • What trading pairs?
  • How do you plan on providing liquidity?
  • How do you plan on processing KYC?
  • Will you support fiat or is your exchange a crypto to crypto only?
  • If fiat is a part of your Trading Platform, have you reviewed available Fiat Gateways (On-ramp/Off-ramp Services)
  • How will you manage your wallets? (Hot, Warm, Cold Storage)

Take the time to research the existing trading platforms in your local and global markets. Understand the limitations of the existing services and define the problem you're solving, and what segment of the market will benefit.

A time tested approach is to draft a list of features and functionality already local and global services. Having a clear understanding of what your everyday user is accustomed to, will give you an insight into the 'must have features' for your Trading Platform. This will help you draft a list of unique features that set you apart and attract the most sought after commodity - new users.

Once you've done your market research and drafted your list of must have features, along with the features that are unqiue to your platform, take the time to understand what you're trying to accomplish. This is your 'Project Scope', and at this stage you are prepared to review the available software options.

Preferably with the help of an expert software development team, like MobiDAX.io, you can assess the 'must have features' with the goal of identifying your Minimal Viable Product (MVP). The goal of any FinTech Business, should be going to production quickly, with reasonable overhead and controlled budget.

Separating the costs of going to production with an MVP, versus the costs of realizing the full 'Project Scope', is a must. Binance was not built in a day, 6 months or a year. Developing a platform to compete with the likes of this giant takes time, but can be accomplished with a well structured planning. In our experience, most successful Cryptocurrency Exchange Platforms, deployed basic services as they drove the first layer of users to the service, while establishing a dialogue with this newly formed community to better understand the need, while gradually implementing these user demanded features. This approach will help you leverage your expenses, gain community loyalty by keeping them invovled in planning and upcoming feature releases. People love to have their opinions heard and considered, and your business will only benefit if you can establish this dialogue. Be creative!

Putting together the MVP and full Project Scope, will likely need a 'User Story Backlog' and 'Designer Mock-ups'. Both of these items will transfer your vision into technical specifications and visual comprehension from the development team that will be tasked with estimating the development work for your project or a White Label Exchange Provider to assess if their platform solution is a viable option.

We always recommend utilizing professional services from an experienced team. This team should be able to guide you throughout the definition, backlog building and designer mock-ups processes. For example, MobiDAX.io team, aside from developers and architect, also has a Business Analyst, Designer and Project Managers available to assist you.

Alternative to Software Development for deploying a Cryptocurrency Trading Platfrom, is a White Label Solution. Typically White Label options are turn-key platforms, supporting a unified base set of features. As these providers continue to develop their SaaS Platforms, more features are becoming available to satisfy the growing demand. But their #1 advantage in this software segment is time to market.

White Label Solutions require minimal software management aleviating the need to employ a tech team and hosting costs associated with supporting such a service. Please understand, that these costs are still billed to you by White Label Providers. Only this overhead is integrated into your monthly fee and revenue share agreement.

The research and choosing the right White Label Provider, should also involve a Business Analyst and Accountant. Business Analyst to review the existing functionality of the White Label Platform, and gain an insight if the platform capabilities are compatible with the product vision. Especially because these platforms are cookie cutter duplicates of the primary service and integrating new features is not possible for anything that doesn't fit into the existing form. The Accountant to understand the full length of set-up fees, commissions and revenue share. Also worth considering is Intellectual Property, because you cannot own the IP of a White Label Exchange. So if Software Ownership is a valuable asset to your business, you can bravely skip past the White Label option.

Careful evaluation is be crucial to the success of your business.

Today's regulation varies from country of registration to the geographic location of provided services. It is important that you are compliant to both, but in general all of the listed items are a 'Requirement':

  • KYC to satisfy local Regulatory Requirements where you provision your service
  • Conform to Global AML Regulatory Requirements
  • Bank grade software security
  • Secure storage of user funds
  • Controlled and secure management of User Funds by Exchange Operations Team

The limit is your imagination of the features you can have available to your user base. Be creative and listen to your community to gain a foothold in the market and inch your way towards the likes of Binance and Coinbase. Often simplicity is key, but here's a list of features for your consideration:

  • Fiat On-Ramp / Off-Ramp Service
  • Custodian Wallet Service
  • 3rd Party KYC Service
  • Trading Bot for Liquidity
  • Trading Bot for Market Making
  • Trading Bot for Platform Traders
  • News Feed Integration
  • Community Chat Built Into Trading Panel
  • Margin Trading
  • Advanced Order Types
  • Simple Trading Interface
  • OTP Trading
  • Multi-layer Referral System
  • Multi-layer Revenue Share Structure
  • Security Token
  • Utility Token (Ex. Binance BNB Coin)
  • Social Trading
  • Leader boards & Trading Competitions
  • Simple Buy & Sell
  • Secure Storage
  • Investment

Without a doubt, a basic operational team will be required to support your Digital Asset Exchange. The amount of assistance  you gain from your software will entirely depend on your software decision, but here are some of the topics worth weighing in on:

  • Can the software support additional services that assist the particular admin role?
  • Do you hire a Compliance Office or use a 3rd Party KYC Service Provider
  • Is it scalable and stable?
  • Does your software support necessary Accounting Features?
  • Does your software integrate with Tax Agency reporting software?
  • What features does the software support in assisting your operations, accounting and customer service teams?
  • Do you offer 24/7 Customer Support?
  • How reliant on support is your user base?
  • Or are you a local market company offering support from 9 to 5?
  • Are you a cross-exchange trading platform?
  • How many bots do you have running simultaneously and what are their fail safe strategies?

Marketing & Advertising
One-third of your business budget should be in Marketing and Advertising. If you gained access to a community of users, you have a leg up on the market, but you will still need to invest into branding, advertising to expand your user base and communicate with the existing community.

Todays marketing strategies are closely tied to the capability of the Exchange Software. Properly managed Affiliate/Referral/Revenue Share programs can have a huge impact on the success of your business. Integrated Utility Tokens (Ex. Binance Coin, BNB) and tailored reward programs already proven to be successful for gaining user loyalty, additional business revenue and even capturing a piece of the market share.

Considering all of the above is the beginning of this topic. Your software choice has to satisfy at least basic marketing deeds and demands.

What is your strategy? Question worth carefully considering.

LEGAL TOPIC: Where should you register your business? What regulatory framework offers the best opportunities for your Digital Asset Exchange?

Here's a short list of countries worthy of consideration as of July, 2020:

Cayman Islands
Vanuatu Puerto Rico

Once you evaluated regulatory requirements to fit your needs and budget, it would make perfect sense to contract a legal advisor in your short list. These advisors will help you to better understand the price of obtaining a license and the costs associated with managing your company in the chosen jurisdiction. Once you decided on the location, you should work with the chose company as your legal adviser to guide and represent you throughout the application filing process and obtaining your license.

Software behind your FinTech business needs to support your Features and simplify the day to day tasks for you operations team. All of these factors should be reviewed when choosing the software behind a successful FinTech service.

MobiDAX - Built by a team with nearly 4 years of experience specializing in developing Cryptocurrency and Fiat Trading Platforms. Today, MobiDAX.io leads the evolution of deploying, customizing and maintaining such platforms as the world's first and only cross-platform solution for Web, iOS, Android and Desktop Applications.

As an experienced and highly specialized team, MobiDAX.io) is responsible for development and deployment of more than 50 Cryptocurrency and Fiat Exchanges. Features, listed in this guide, have been developed by our team and we gladly share our experiences and knowledge base with you.

Contact us, and we will gladly assist you in the decision making process, from conceptual planning to production.

Subscribe to our email newsletter today!