Let's dive a little deeper.
The current crop of exchanges are decent solutions for those looking to buy their first bitcoin/cryptocurrency/mooncoin/shitcoin.
But, for professional traders, the existing solutions are like a bandage that was fashioned out of a rundown rag - it does what it should but it's neither the most effective nor comfortable.
You use that rag only because you have no alternatives
They could’ve. They should’ve. That’s a reductionist argument. As an entrepreneur, I see that crypto-crypto trading experience is woefully inadequate and I’m going to change it with our cryptocurrency trading platform DxOne.
It is 2020.
Customer centricity demands that you make the user experience seamless and require fewer clicks (or customer touch-points). The current crop of cryptocurrency exchanges has badly failed on this front.
But first, let’s talk about the state of crypto-crypto trading today.
There are over 5,000 cryptocurrencies according to coinmarketcap today. Only those cryptocurrencies that are listed on at least two exchanges get listed on coinmarketcap. Thus, the actual number could be at least 4 times that number.
What do a vast majority of these cryptocurrencies have in common?
Well, this isn’t even the worst part. What’s really bad, at least from a purely pioneering perspective, is that while the new trader getting overwhelmed by the Wild West is considered acceptable, the grizzled veterans facing the heat is sacrilegious, and even damning.
For the context of this article, I’m assuming everybody who’s traded in altcoins outside of the Big 7 - BTC, ETH, BCH, LTC, XRP, XLM, and BNB to be a seasoned crypto-crypto trader. This trader trades more with discipline and less with lucky charms.
They expect to have:
Customizable Dashboards - Instead of a cluttered interface or the new-fangled minimalistic dashboards, the veteran crypto-crypto traders want more control over what information gets the precious real estate on their screen and what doesn’t.
The existing cryptocurrency exchanges confine these traders to whatever interface the UI/UX developer deemed it to be. In my opinion, cryptocurrencies are all about individual choice and that implies complete customizability.
Try trading calmly when the VIX shoots by 60% intra-day and you’re scurrying to locate the Elliott Wave tool.
Distraction-Free Realtime News Feeds - The crypto-crypto trading veteran does not wait for “crypto-influencers” online to tell him/her what to trade. To be ahead of the curve, they require real-time news feeds from news-media, crypto-media, and financial-media, to quickly add 2 and 2 in their heads and execute their trades.
They don’t want to have 25 tabs open in their browser and run the risk of browser crashes or something as simple-yet-painful as being unable to locate the right tab at the right time.
True Price Discovery - Unlike FIAT, where the price of a currency is relatively stable (because the issuing authority is a Governmental Organization), the price of cryptocurrencies is purely driven by their demand. The price of 1 ETH is always what the buyer and seller agree to transact at. Thus, with several pump and dump schemes at work, fake liquidities, and sometimes even collusive activities by cryptocurrency exchanges, the veteral trader is (should be) always wary of the true price of the cryptocurrency being transacted.
The adage that there is strength in numbers is true and hence the seasoned traders too flock to the bigger exchanges since they’re harder to manipulate, hack, or subvert.
According to the Blockchain Transparency Institute, after adjusting for faked volumes, the largest cryptocurrency exchanges, by traded volume are as follows:
Binance: Spearheaded by crypto’s own - CZ, it has reportedly the largest monthly verifiable trading volume across the board. As one of the early entrants to the crypto-trading realm, Binance has emerged as the go to name for first-time cryptocurrency traders worldwide. Recently, Binance has been on an expansive rampage with the introduction of its own Blockchain and a Futures Trading mechanism.
Coinbase: Arguably the most trustable of all cryptocurrency exchanges, Coinbase is headquartered in San Francisco. It is strongly compliant to the US regulatory authorities and to several other global regulatory bodies making it one of the safest options for those looking to dip their toes in the freewheeling realm of cryptocurrencies.
Upbit: Headquartered in internet-savvy South Korea, Upbit has seen some of the fastest growth among all crypto-exchanges. Consistently ranked as one of the cleanest exchanges, the Upbit exchange also bounced back quickly after losing $48.5 Million in Ethereum due to a hack.
Other big names include Bittrex, Kraken, Bitfinix, and BitMex to name a few. Between them, they account for over half of all legitimate cryptocurrency trades on a daily basis (with fluctuations of course).
Does that mean that the market for cryptocurrency exchanges is a red-ocean market? To answer that, we need to keep into consideration that the cryptocurrency market in itself is almost entirely unsaturated.
Cryptocurrency’s potential and its current market size can both be summed up via this tweet:
While nocoiners would argue at this point that the cryptocurrency market size is still insignificant when it comes to the larger traditional investment market, the other camp takes solace in the fact that the rise of cryptocurrencies cannot be denied anymore.
Once you see the above picture in the context of growth correlated with time, you’d see that the only word for the growth of cryptocurrencies is - phenomenal. Gold might be 70 times the size of the bitcoin market today but it has had a head start of over 3000 years minimum.
The Privacy vs Security Conundrum of Cryptocurrency Exchanges
While the Centralized Exchanges (CEXs) versus Decentralized Exchanges (DEXs) debate rages, there is no denying that the CEXs, despite not being truly anonymous, have consistently clocked higher trading volumes than the DEXs - month after month. This makes it evident that crypto-traders, especially the newer ones, prefer safety of their funds over their privacy.
But, are these centralized exchanges really secure? With a reported value of over $1 Billion stolen from just the top 5 cryptocurrency exchanges alone, another component comes into play. CEXs keep a bunch of cryptocurrencies in a trading pool of sorts for furnishing liquidity for daily traders.
Think of it as the bank branches that have smaller sums kept in their individual vaults to enable withdrawals while the bulk of it is kept under much higher security in another location. Thus, even though an individual bank account might get robbed, the bank does not collapse. Also, the Governments do their bit by insuring the funds deposited in banks.
No Government backs your crypto-deposits at cryptocurrency exchanges...Yet
Resistance to Regulatory Compliance by Cryptocurrency Exchanges is Short Sighted
Without laying the blame squarely on the crypto-exchanges or the regulatory bodies, it must be understood what forces are at play here and why the user experience is not great:
Conducting KYC completely online is fraught with dangers of enabling money laundering and terror financing. On one hand, crypto-exchanges want to enable hassle-free buying and selling of cryptocurrencies, on the other, the regulatory bodies want to have at least a semblance of the paper-trail that traditional banking institutions generate to prevent KYC/AML violations.
Facilitated Deposits, Impeded Withdrawals, is something that makes business sense but fails in the good old common sense department. Since money laundering can happen at both these touchpoints, both should be on an even keel. This leads to trader wariness as they are made to jump through stages that possibly could be names of the stages of a Ponzi scheme. You’re VIP tier 1. To withdraw 1BTC or higher, you need to be at least a Gold Tier 2.
The Incentivization Gimmick of Exchange Tokens
What does an exchange token do? Well, It can be programmed to do anything but almost all exchanges program it in the same way - to act as a discount coupon for their arbitrary trading fees.
Think of it as the holiday season discount gimmick. Ever wondered why shopkeepers offer discounts around the holiday season when demand is high. This flies in the face of Econ 101 - If demand rises, the price rises to bring about equilibrium. Most shopkeepers first increase the prices and then offer discounts on those inflated prices, effectively not offering the discount at all, or offering a small discount.
In our opinion, we need better incentivization models than that to get more people interested and able to purchase their first bitcoin with relative ease.
Funnel Streamlining to Address Cart Abandonment
The Amazons of the world recognize cart abandonment as one of the largest contributors to sales lost and hence try to make the checkout process as streamlined as possible. While the cryptoverse does not have a concept of a cart but cryptocurrency exchanges need a streamlining of the funnels.
The absence of real-time market data with respect to a particular cryptocurrency’s price or news item leaves the crypto-trader oblivious to the rapid market developments that are, at least at the moment, the hallmark of trading in cryptocurrencies.
Us humans find it almost impossible to break a habit and cultivate a new one. One could crack a joke at the expense of Bing users or those still using Internet Explorer but simplicity and habits are hard to change.
So, we won’t tell you to kill your Binance account, liquidate your coinbase wallets and bring all your cryptocurrency to us. Your favorite cryptocurrency exchanges won your trust for one reason or the other. We suggest you wait for them to evolve in a timely manner to provide you with the tools to optimize your trading chops or help you buy your first bitcoin with ease.
What we would like to end with is to invite you to come see what the future of cryptocurrency trading looks like at DxOne. You don’t have to stay. You don’t need to trade.
But, if you like what you see - give us a shoutout on Twitter or on Facebook.