I bet that anyone who, at least once, was thinking about starting a cryptocurrency business, has stumbled upon the idea of launching a crypto exchange.
According to the Internet, this is one of the most profitable crypto business ideas that one can start “right now” (LOL🤣).
Tons of top-ranked articles will offer you similar listicles of “simple steps”, explaining how to do it, as well as an approximate estimation of the launch cost of something around USD 200k. The problem is that most of these articles are merely theoretical and seem to be written by those who have never put their skin in the game. So the “insights” they give could be pretty misleading for anyone with no background in the crypto business and cause the adverse consequences of dilettante mistakes.
Here, I will show what the true cost of getting into this adventurous journey is. But hey…How do I know the truth?!
Well, I was precisely among those hotheads, who one day just thought:
“Why actually not launch a crypto trading platform? Even those dumbasses with no financial background do it, so can we beat them easily!”
And we got started.
That was romantic 2017 — the crypto “belle epoque”, full of dreams, dementia, and courage. It took our team more than 3 years of blood, sweat, tears and sleepless nights to make our baby fly. An absolutely unforgettable experience.
I want to make it serve for the benefit of the crypto entrepreneurial brotherhood
So how much does it cost to build a crypto exchange?
I would answer:
You need millions of bucks on hand to start and keep it running! At the time of writing, the minimal cost to start a crypto exchange is 10 million US dollars, no matter what knowledgeable people say on the Internet. If you don’t have that kind of money, don’t even get into this!
Why so much money?!🙀 The assumption here is that you want to build a successful and profitable business. You see it as a tool for generating money, rather than just a trendy and expensive hobby, right? If so, I’ll give you a quick overview of some non-negotiable costs you must be ready for:
Cost of development.
You can’t stay competitive in this industry if you don’t have a top-notch IT product with all the features traders want and that ensures safety for their money. For that, you have to hire an exceptional development team and incentivize them properly in the long run.
Don’t let yourself be fooled by the idea of using a 3rd-party white-label turnkey solution for a quick and easy launch. If you want to create an effective business with lasting success, then it’s time to get serious and build out everything from scratch and not take any shortcuts. The “just plug in” promise of the white-labels is as true as an Instagram ad saying you can lose 10 pounds per day without exercise and food limitations. Doesn’t seem like it’s working…unless they probably mean going on an amphetamine diet…
With a 3rd-party white-label solution, you CANNOT build your own exchange. In fact, you can just create an online reseller of a 3rd party’s liquidity. Essentially, when your exchange is built upon a white-label solution, it just quotes a 3rd party’s order book with their commissions included and charges extra fees to customers in addition to the white-label’s ones. At the end of the day, to a trader, your online platform would look way more expensive compared to your competitors’. Obviously, you are going to struggle to attract new customers and motivate them to stay in the long run. So don’t waste your money on third-party solutions. It will not pay off. Instead, invest in the development of your own excellent IT product. On average, it will cost slightly less than USD 1 mln. Yes, this is a serious business!
Operational costs. A crypto exchange is a capricious product. To function properly and safely for your clients’ money, there is a huge list of the requirements to be met. Just to give you an idea: great hosting service to provide the best execution speeds various security solutions to prevent DDoS and other types of cyberattacks legal services payment processing services bank merchant accounts continuing obligations connected with exchange’s license (if any) etc., etc., etc. Well, altogether it can easily cost about USD 100k/monthly.
Cost for market-making services. To stand out among competitors, not only do you need to create a great trading venue from both a technical and a UX standpoint, it also must be liquid. What is a liquid exchange? One that enables its customers to trade assets quickly and easily with tight spreads — gaps between the assets’ bid prices and ask prices. The more liquid an exchange is, the more attractive it will be to customers. In order to grow your exchange’s liquidity, at the start you will need to hire market makers — the professional liquidity providers who ensure that buyers and sellers can smoothly transact in markets. For a baby exchange, the cost for market maker’s services may reach USD 100k-150k quarterly per trading asset.
Cost for marketing/PR. Well, the sky’s the limit for these expenses. As the crypto market constantly changes, you never know what kind of marketing/PR strategy will be effective for customer attraction. So you have to go through many trials and errors until you finally find out a winning formula.
The base estimation for developing a marketing strategy, its testing, gathering metrics, and the implementation of campaigns might be something equal to USD 100K monthly. This is the real cost if you want to move fast.
As for PR, if you’re considering going international, you will want to hire a well-reputed agency to help you with that. On average, the price for their services can be USD 15–20K monthly. This doesn’t include participation in conferences and any kind of brand sponsorship.
Besides the mentioned costs, there is also another important reason why having millions of bucks on hand is a must for getting into the crypto exchange business.
As a founder, all your time and attention should be focused on developing an awesome platform and customer acquisition. You should not be distracted by money worries and fundraising tasks.
There are no words to explain how important it is to understand this. Fundraising If you’ve never done fundraising before, let me give you a sense of what it looks like.
Let’s assume you don’t have wealthy friends or family members willing to immediately throw their money at your business upon your demand. So you start reaching out to potential investors, pitching to them, going through countless calls and meetings attempting to persuade them to invest, getting a lot of silent treatment and rejection, etc.
You keep repeating this cycle until you finally get “Ok, let’s prepare the transaction documents.”
Now it’s Season Two of the Fundraising Show.
This is where you bargain and sometimes even fight with the investor in order not to be suffocated by their terms. I’m talking about various representations, warranties, indemnities, and different liabilities traditionally imposed on founders through the investment agreement. These are ticking time bombs for founders in case something goes wrong. It takes a lot of time to talk investors into eliminating them from the deal.
In the best-case scenario, the whole fundraising process can take 8–10 months. This means that, during fundraising, you’re not working on your platform with as much intensity as it requires.
Wrapping it up
When properly started, a crypto exchange eats tons of money from day one. It can take quite a while before it starts generating revenue. To accelerate this blissful moment, everything shall work in the right and sustainable way. So make sure you understand the real cost of this business and have the necessary money to make it fly.