In the rapidly growing and crazy digital currency market, the exchange is the biggest winner. On one hand, they charge transaction fees; on the other hand, they charge the crypto listing fee, and also they issue exchange token. regardless of the trend of the market, the exchange is almost stable and does not loss money. According to recent statistics and analysis by howmuch.net, the daily average profit of the top five exchanges in the transaction volume exceeded US$1 million, and the profit of Binance was even as high as US$3.42 million.
Tempted by the lucrative profits, many entrepreneurs are rushing to the exchange business. According to the a crypto media, 234 digital currency exchanges have been created on the market. At the same time, there are more and more security attacks by hackers, and the uncertainty brought about by regulation is also increasing.
Therefore, we can not help but ask, this market can really accommodate so many exchanges? What are the implicit and explicit costs of a exchange? Is the exchange really a good business for new arrivals?
Wealth Vortex Center
“Not all business are profitable, opening a supermarket can make money, and opening restaurant can also make money, but how many bosses really earned money?” When it comes to exchanges, the founding of Digital Asset Exchange service provider — MasterDax — Li Cheng said. Li Cheng once founded an exchange called OurDax, but eventually gave up.
In the digital currency market, the wealth form a huge vortex, and the center of the vortex is the digital currency exchange. As a platform for merging buyers and sellers, exchanges are the largest meeting point for blockchains and wealth. Interest in wealth and the lack of a system of restraint in exchanges make their profit infinitely magnified, making it a best place for many people to earn money.
According to recent statistics from howmuch.net, the average daily profit of the top five exchanges in the world exceeded one million U.S. dollars, among which Binance profit was as high as 3.42 million USD.
However, compared with the “giants” on the big exchange, batches of small exchanges are still struggling to survive. According to the “Digital Currency Exchange Research Report” published, among the current 188 exchanges that have effective trading volume, the top 14 trading exchanges occupy the 73% transaction amount, the remaining 170 exchanges only split the remaining 27% of the transaction volume.
This market is an oligopolistic market. The head-effects will become more and more obvious, and new users will gather closer to the head. Some second-level and third-level exchanges have seized a wave of dividends from the end of last year to the beginning of this year, and accumulate a certain amount of users and popularity, but there is still a huge gap with the first level exchange. The new exchanges that were established this year, whether it built with the so-called financial ideals or in order to get rich, seems they not come at a right time.
CoinMarketCap’s data on May 9 showed that in the 24-hour trading volume rankings of the global exchanges, Binance, OKEx, and Huobi ranked in Top five. There are many negative accusations surrounding the most three famous domestic exchanges. Although there is no conclusive evidence to confirm their authenticity, various types of incidents have caused many disputes. It is true that there were OKEx futures rights protection events in March. However, this does not prevent them from gradually expanding their business and reaching out to the corners of the blockchain map.
The top exchanges have played a lot of new tricks in response to fierce competition, including the launchment of platform currency, contract futures and so on. What really matter to exchange is a traffic problem.
Traffic business
The profit model of the exchange is not complicated. The main source of income is transaction fees. The transaction fees of major exchanges are between 0.03% and 0.5%. There are also listing fees charged to millions of projects. There are also business income sources such as leveraged transactions and financial derivatives.
What volume can a stock exchange be able to survive? “If you can do an average of 500 Bitcoin transactions per day, the exchange may be able to live a little more moisturized.” Li Cheng calculated for us an account, assuming an exchange day is 1000 people, average each person The transaction volume of 0.5 Bitcoin a day, a total of 500 Bitcoin transactions a day, the exchange charge for two-way processing fees, calculated as 0.1% or 0.05%, a half a day to a bitcoin net income.
But it is not easy for a newly established exchange to start making money. If the exchange is likened to a store, there are two important tasks for it to start business: one is to guarantee the supply of goods, and the other is to expand the user base. In the face of these two problems, liquidity has become a common problem for all newly established exchanges.
From the supply side, providing investors with adequate and high-quality investment targets is the job of the exchange. For the digital currency exchange itself, the currency also means high income, and star products will also bring Considerable traffic.
Star products are likely to be the key to the rise of the exchange. For example, OKCoin in 2013, when almost all Litecoin users in China went to OKCoin, OKCoin developed rapidly. In December of that year, OKCoin had a daily turnover of 9 million on Litecoin, and it later reached 13 million. In addition, the rise of the poly coin network and the cloud coin network was also due to the capture of ICO’s crazy dividends. They almost came to rely on various kinds of coinage to develop.
After the June 4th, Coin was welcomed as a currency transaction early in the day. In December, wave-coin options were offered for sale at the Coin Security. With strong marketing measures, the 500 million-wave field currency sold within one minute. , New users surged and even had to suspend registration. Therefore, the exchanges will all want to compete for high-quality items on the coin or even the right to start. For this reason, they even resort to exempting money from attracting quality projects. “We will charge a $100-million dollar fee for normal projects, but if it is a first-time project, it will be a five-percent discount. If it is a high-quality project, it will be exempted from direct payment,” said Chen Xiaohai, CEO of Thailand Bull Exchange. Big Bull Exchange is a new exchange officially launched in early May this year.
However, the exchanges that can pull star projects are only a few after all. Drainage is a more important task for the exchanges.
At the traffic end, the way the exchange obtains traffic is basically “primitive”. It is almost through the use of candy, gifts, fissile marketing, and reduced transaction fees to win over the users. This may bring about considerable traffic in the early stages. However, due to the small number of types of currency and poor liquidity of the mainstream currency, users may arbitrage and withdraw cash on the small exchange platform before trading on the major exchanges. Zhang Yuwei, the founder of the digital currency exchange Cointiger, said that their use of these methods is actually more cautious, because most of the users left behind are for speculation, and the exchanges have to provide users with a possibility of making money, rather than occupying small amounts of money. Possible.
In order to make users feel more stable and profitable on the exchange, some exchanges use robots to make fake transactions to increase trading volume. Zhao Changpeng once published an open letter on Reddit in 2015, stating that “OKCoin uses trading robots on their exchanges. Many employees and former employees of OKCoin know that these robots exist… I can confirm that some of the robots mentioned above are Specifically designed to increase volume. At some times, these robots were also used to create orders and trade with themselves and not to trade with users.” OKCoin then responded by saying, “OKCoin does not require any false trading volume. We The customer developed a large number of market-making robots.OKCoin does not have any own robots in the production environment.
The two parties hold their own words and the truth is not known. However, on March 10th this year, an analyst named Sylvain ‘ArtPlay’ Ribes issued a message on Medium, saying that after statistics and reasoning, some well-known digital currency exchanges There was fraud in the trading volume, among which OKEx even reached 93.6%, followed closely by 81.8%. An investor in the blockchain field said that “brushing the list starts with Taobao and has been working tirelessly.” OKEx’s trading volume on CoinMarketCap is still at the top of the list.
Exchange Trader Opportunity
Exchanges are an intersection of technology and finance. Digital exchanges have not only assumed the functions of the exchanges. They also need to complete the development and maintenance of the exchanges themselves. They also assume the responsibility of brokerage firms, investment banks, and securities regulators. , rating agencies and other roles. However, with the gradual standardization of the market and the shift in the focus of the exchange’s work, many sub-divisions around the ecology of the exchange must be spawned.
Exchanges actually have a low technical threshold. It is not an easy task to independently develop and set up a trading exchange system. It usually takes 3 to 5 months. One of the most important technologies is to match the engine and wallet, and the most closely related engine and transaction, which determines the efficiency of the exchange, and wallet and blockchain are more relevant. In the face of rapidly changing markets, policy environments, and commitments in the white paper, many exchanges will choose to purchase the entire trading system from third parties.
As for the main body’s compliance, just as many exchanges were able to develop at the outset, it was a policy to play football. The current basic situation is that all exchanges choose to land in countries with relatively friendly policies, among which there are many small illegal transactions. The country, such as the currency chosen by Malta. These small countries, which have no credibility in themselves, either lack supervision or have issued licences that do not have substantial gold content. The market must regulate and continue to develop, the license is necessary. Countries that have already issued relevant licenses for the digital asset trading industry are mainly Japan, the United States, Switzerland, Canada, and the Philippines. Each country has a different attitude toward digital currency, and the licenses granted by the licensees are also different. The most formal of these are Japanese licences, which are very detailed and strict and can only be approved on several currency pairs.
The future of the exchange
Exchange is a financial service platform. It provides a liquid market. It does not have the function of harvesting itself. The alleged gray income is the result of evil. The prevention of evil does depend on industry self-regulation and supervision. In the past, China’s securities and futures markets have experienced similar problems in the process of development. Due to misunderstandings and interest-driven issues, there is excessive speculation, market manipulation, and transaction fraud in the absence of unified management. Such acts disrupt the market order and lead to frequent vicious incidents.
There is not much opportunity before the newly established exchange. Almost the only new opportunity that can be foreseen is the dividends brought about by the supervision. Until the regulatory policy becomes clear and clear, the issuance of licenses may open up a new situation for the current exchange structure.
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