Holy Land of Crypto Users: How does Web3.0 Data Empower Centralized Exchanges? by@bingventures

Holy Land of Crypto Users: How does Web3.0 Data Empower Centralized Exchanges?

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Bing Ventures is a crypto VC fund supporting early-stage projects in the blockchain and cryptocurrency industry.

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This article only discusses the data generated by users based on the cryptocurrency exchange platform itself and does not discuss the data involving other businesses of the exchange.

Business is data, and data is also business

1. The appearance and essence of the centralized exchange business

Making money ‘easily and intelligently’ is one of the essential reasons why centralized exchanges have been running and growing in the crypto industry for a long time. This is a tall ask for any financial institution, but these centralized exchanges have created user-centric interfaces that welcome these ‘lazy’ users as a first stop to investing.

It looks like centralized exchanges are still copying the business growth logic of the Web2.0 era, which is to meet user needs and constantly improve. But more and more crypto users are becoming "diligent" and "smart." The original positioning of simply meeting users' trading needs is being replaced by other blockchain products, such as decentralised exchanges.

Over the past few years, many centralised exchanges have adopted various strategies to remain competitive against similar larger exchanges and the encroachment of other innovative products with DeFi at its core. But for various reasons, most small and medium-sized exchanges have gradually disappeared. The reason is simple: users don't need that many exchanges.

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Users just want to "simply make more money" and this translates to "less is more".

The epic big bull market since 2020 has provided huge revenue opportunities for crypto users and institutional investors, but most users would prefer generating passive income instead of actively monitoring the trading markets. So exchanges that are easy to use and have super-high return assets and high-return gameplay are often more popular.

There may be hundreds of different CEXs in the current crypto ecosystem, but only exchanges that fit the above criteria dominate the space. Notably, the current crypto world is still in a state of high volatility, while users and project parties have evolved the ability to quickly create and iterate revenue opportunities.

Fortunately, these "high-yield" neurons are still in a fragmented state, and centralized exchanges still have the opportunity to become the central nerve of these "revenue islands".

It seems that data still has a lot to do.

2. Two paths: passive reconstruction of data or active empowerment

CEX plays the role of traditional exchanges, banks, and fund companies, helping buyers and sellers trade and to provide security. This makes the users of centralized exchanges more passive in nature. Thus, the various pages and data that users see may not be an accurate reflection. This is because people are more excited about the gains of their asset pages compared to the increase in transactions or growth in activity.

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High-quality centralized exchanges should learn to "attract users" so that users can form a "data dependence". Passive reconstructed data is often like drugs, and while exchanges can build users on "data brushing" or "trading mining", they often backfire. This deformed flattering pattern generally creates a pile of useless junk data that is redundant to the exchange itself.

Active-empowered data is often more like a "good feeling." While users are still faced with a bunch of cold numbers, they are also accompanied by sustainable gains beyond the data. The exchange's data will then be more like a qualified financial manager. It doesn't have to tell users how they change, just to enjoy the pleasure of asset growth. This growth is based on using exchanges, whether horizontal or vertical growth. The data generated by the user during the operation can be continuously generated, and the user itself is insensitive to the data.

3. Water and fire dispute: business growth and data neutral

Take Binance and Coinbase, the most famous centralized exchanges, the growth of their users has stagnated to a certain extent. At the same time, the user's choice is greatly enhanced. A multi-chain ecosystem of crypto is emerging, and both user trading habits and the paradigm of asset trading have been greatly changed.

Exchanges are turning into a gateway hub to the crypto world. Users expect the opportunity to tap into all the proceeds of the crypto world, but apparently, no exchange has that charm.

Data shows a powerful drive at the entrance of the crypto world. The business growth path around data derivatives is more like water. User data on the platform is more like an ungerminated seed, which only takes time to grow. And the data around business growth tends to be more like fire, burning out one day. The former is the gameplay of the Web3.0 era.

Data Lego, trapped in the platform paradox

1. Liquidity and modularity

The advent of blockchain technologies and token mechanisms has optimized data liquidity, especially in providing economic value for the processing and exchange of large-scale data. Crypto exchanges tend to value the liquidity of tokens and ignore the tradability of the data flow behind them. For the crypto industry, users are increasingly dissatisfied with investing themselves. Users tend to have increased "research" investment behavior and hence, we saw the rise of professional data research service providers in 2021.

This is similar to traditional markets such as stocks. With the increase in user trading experience and the repeated birth of market cycles, users increasingly prefer expert analysis by professionals or quantitative tools. For cryptocurrency exchanges, the modular data board gives users a more professional "feel".

How to present the data in front of traders and make it high frequency is a very important topic. Exchanges have huge amounts of trading data, so there are a lot of data modules available. The setting of the data indicators, the design of the data board, and the presentation of the modular data results will greatly improve the investment experience of the users. Making users feel that they invest more wisely and professionally is just the first step. How to truly optimise users' investment decisions and benefit them will determine the loyalty of cryptocurrency exchange users.

2. Immediacy and lag

The direct perception of exchange data comes from the accuracy of their own data-based prediction results. The data tools of the existing crypto exchanges are basically limited to the technical indicators of the traditional financial markets, such as MA. Specific data for the crypto industry, such as data on the chain, NFT data, and DeFi Yield Farming data, are often decision data that are equally important to users.

These important data that constitute the user's personalized prediction model are ignored for various reasons, making the user's investment behavior separate.

In addition to using technical metrics on exchange websites, users need to go to different sites to look for various crypto industry-specific data. However, both ordinary users and professional traders have a great demand for a comprehensive grasp of the data in the entire crypto industry. The current data prediction network provided to users by crypto exchanges is not enough to fully meet their one-stop investment needs.

In the securities trading industry, brokerages have a high consensus on the timeliness of data, especially in market prediction and other aspects, the data toolbox is very complete.

In the crypto market, the comprehensive analysis of real-time data of transactions has also received more and more attention from investors. After a decade of development, the cryptocurrency trading market has formed an emerging industry. Exchanges that have accumulated a large amount of raw trading data should mine and analyze this real-time data, as enabling users is also enabling exchanges, which is the significance of Web3.0.

3. Safety and openness

Internal and external malicious threats are the two main security problems facing the exchange data as centralised exchanges still need a lot of human resources to maintain the platform security.

For users, centralized exchanges have full control of their asset security. They cannot guarantee that the data they get is completely real and transparent.

Therefore, exchanges need to seriously consider whether users should be given a considerable amount of data permission. For exchanges, how to prevent insiders from committing crimes through first-hand data is also an important topic. At the same time, the vulnerabilities in the platform also give hackers great opportunities.

Of course, the data collected by exchanges from their own channels is also one-sided. How to work with other organisations in the Web3.0 world to use data is also a tool to stimulate data availability. By constantly seeking the possibility of data cooperation with projects outside the exchange ecosystem, the exchange is expected to explore more business forms.

Government sovereignty or user-based authority will be the two conflicting values that will affect the future of exchange data. The centralized exchanges currently possess a lot of data. But in the real world, governments cannot leave the cryptocurrency market alone. If the government chooses to continue the regulatory idea of Web2.0, it is inevitable that centralized exchanges will be forced to hand over their data ownership, which is obviously against the spirit of crypto and the user base on which the exchange lives.

In the Web3.0 era, exchanges need to focus on how to deal with the issue of user data ownership. Users will always use their feet to vote on those projects that better protect their rights and interests.

The accelerated outbreak of transformation

1. Visualisation: visible data

Coinbase has become a popular crypto investment platform for U.S. investors. This rate of rapid development is largely the result of changing the platform's efforts to create visual investment tools. Coinbase's efforts in the visualization and ease of use of the data have greatly increased the number of users. Take Coinbase Analytics as an example. This is a feature launched by Coinbase that integrates blockchain analysis software, crypto risk monitoring tools, crypto compliance software and other tools.

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Governments, financial institutions, and crypto companies can use the tool's data to support crypto compliance. The tool monitors the risk of millions of addresses through visual charts while giving early warning of fraudulent activity in Bitcoin, Ethereum, and other currencies.

The Coinbase Analytics uses a public data source to obtain its information. And visual data to analyze the flow of cryptocurrencies to help users understand the associations between different counterparties.

Users can use custom tracking addresses to comply with anti-money laundering requirements. This tool can be submitted to users for alerts and risk ratings about suspicious transactions.

2. Intelligence: personalized indicators

Uniswap is a decentralized exchange developed based on smart contracts, with a V3 version introduced not too long ago. There are two main advantages behind the rapid rise of Uniswap V3: improved capital efficiency and a low-cost pool of 0.05%.

Both provide a better experience for traders and are more competitive than centralized exchanges. In terms of capital efficiency, Uniswap V3 can do more with fewer resources. The concentrated liquidity of V3 makes low-slip trading possible.

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Looking ahead, V3 could reach new heights as Uniswap fully deploys it to Layer 2. With gas fees going down, Uniswap's low 0.05% fee will put pressure on centralized exchanges.

In particular, single-day trading volume / TVL, like centralised exchanges, optimises the profit return of LP. This is an advantage that the centralised exchange cannot temporarily achieve.

3. Value: high return income

Binance's data strategy has created rich value. Binance is one of the first centralized exchanges to launch its own ecological public chain and firmly occupies the top position in the current public chain ecological performance.

Through sustainable ecological capture methods, the user benefits are improved. In particular, the platform currency BNB benefits Binance's customers, employees, and investors together.

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BNB Chain became the infrastructure provider of the virtual world economic system by developing the MetaFi concept. This strategy incorporates almost all the data from the concepts of the meta-Universe - DeFi, GameFi, SocialFi, Web3, NFT, etc.

The new system is based on standardised metadata parameters and universal data assets in the metaverse. Enabling the economy through the BNB Chain as an infrastructure provider in this economic system.

4. Diversification: Cross-types of assets

KuCoin (KCS) has also launched its exclusive Layer1 blockchain, designed to provide a more convenient and low-cost user experience for its ecological community.

KuCoin has plowed into market segments, hitting more than hundreds of tokens and offering multiple stablecoin trading pairs. In addition, KuCoin has introduced the liquid mining ecosystem, Pool X offers many opportunities to profit from idle liquidity. Dozens of hot tokens can be locked in this pool.

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At the same time, KuCoin jointly launched a popular project side pledge activity. In early 2021, the KuCoin Exchange also launched a multi-asset lending service, known as KuCoin Lend. KuCoin Lend supports more than dozens of assets. This has greatly broadened the revenue source of the users. Facing such a rich asset class, users will naturally increase their enthusiasm to participate in the platform activities.

Summary: Data leads users and highlights the open value of Web3.0

Of course, there is a paradox in the value discussion of data: a reflexivity in the data. The data of cryptocurrency exchanges is complex, and how to design a high-quality screening mechanism to provide maximum help to users' complete value discovery has become a problem that centralised exchanges have to face.

Exchanges should uphold the values of openness, so as to confirm the "correctness" of these data under the guidance of users, especially in the business exploration stage. 

Designing a data-oriented,  user-incentive mechanism is a good path. Under the premise of huge trading demand, the exchange needs to build a high concurrency, high-performance, high-security trading system. Only then can we create a continuous active business form: UserFi (user finance). That is, a user-oriented and personalized data sovereignty as the value, to guide the establishment of a self-produced crypto finance business.

By Kyle, Investment [email protected] Ventures


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by Bing Ventures @bingventures.Bing Ventures is a crypto VC fund supporting early-stage projects in the blockchain and cryptocurrency industry.
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