This year is the year of cryptocurrency exchanges. Visionaries, like Binance CEO (“CZ”) and Coinbase founder , made tens of millions of dollars through their digital currency exchange platforms. Changpeng Zhao Brian Armstrong With an by the top ten exchanges, they are undoubtedly some of the most profitable businesses in the cryptocurrency space, only . Furthermore, major exchanges are dreaded influencers within the space and appear to have an enormous impact on the prices of the “chosen” cryptocurrencies, as suggest. estimated daily profit north of $3 million trumped by the imperious mining industry recent reports Recent news like the , a Bitcoin futures exchange launched by the operator of the NYSE, are pointing towards growing institutional interest in the cryptocurrency exchange industry. The ball is rolling and it’s rolling fast. The question is: where is it heading and how far can it go? announcement of Bakkt The perfect storm The outlook for cryptocurrency exchanges wasn’t always as bright as it currently is. Most early cryptocurrency investors probably stumbled across the notorious in February 2014, which resulted in the loss of tens of thousands of Bitcoins belonging to private investors and triggered a downtrend that lasted nearly 2 years. This event stands for one of the biggest setbacks in Bitcoin’s history. hack of the Mt. Gox exchange Unfortunately, the story doesn’t end with the Mt. Gox fiasco. Despite being the former on Apple’s U.S. App Store, the controversial monetary gateway Coinbase is presently suffering from . At the same time, several other cryptocurrency exchanges are being accused of charging obscene fees for the listing of initial coin offerings (ICOs), some supposedly as high as one million dollars. Another persistent allegation, that the trading volume on numerous exchanges is artificially inflated, and could lead to erroneous rankings, as well as trust issues from the customer side. most downloaded app unflattering user ratings has already been proven Understandably, such events attracted the attention of international regulatory entities, who already demonstrated their willingness to . Some regulators even doubt the legitimacy of most coins and tokens exchanges in general. As SEC representative Brett Redfearn with CNBC: ”There are a number of exchanges that are trading ICOs that I would think that we would see more registrations.” shut down fraudulent trading platforms mentioned in an interview A piece of the pie In spite of all these worrying incidents, the companies behind those platforms are continuously recording breathtaking revenues, even in certain cases. Blockchain magnate CZ, who appeared in many headlines for becoming a billionaire in less than six months through his exchange Binance , even made it to the Forbes cover. News of this caliber are starting to move large established organizations to explore this new market further. outpacing some of the biggest banks in Europe and its utility token Earlier this year, Goldman Sachs subsidiary Circle spent about $400 million on . Moreover, stock market heavyweight NASDAQ disclosed the intention to a few months ago. A similar trend can be discovered on the European continent, where Switzerland’s main stock exchange SIX in the next months. The cherry on top are the news about ICE, parent of the world’s biggest stock exchange NYSE, which recently announced . acquiring the U.S. based cryptocurrency exchange Poloniex become a cryptocurrency exchange itself plans to support Bitcoin and other altcoins a crypto trading platform scheduled to go live in November 2018 Tokenizing Wall Street While the big players of the traditional stock market are trying to catch up, established blockchain companies, like Coinbase and Poloniex, have bigger fish to fry. The tokenization of financial assets, such as stocks and other securities, represents a — global securities market valued around $15 trillion — with the potential to disrupt the entire stock market itself. This is leading to a highly competitive race to build the first operational security token exchange. promising business field Nevertheless, choosing the right jurisdiction for a security token exchange seems to be one of the main challenges when considering to open such a platform. After an alleged regulatory approval for a Coinbase security token exchange in the United States, only a few days later. Others, like the China based OKEx, are trying their luck . Potential destinations could be the Mediterranean islands Malta and Gibraltar, as well as the central European banking hub Switzerland. the company was forced to pull back with smaller oversea jurisdictions Very recently, the crypto startup Open Finance . This development is an interesting step towards a wide adoption, but there are still many critic voices in the space. , CEO of security token platform Aboveboard, mentioned in an interview that “exchanges are only being approved with significant restrictions on private market trading”. announced that it just launched the first regulated security token exchange in the US Andy Singleton Andy Singleton is known for his campaign to create a market for professional investors and quality securities. He points out that the industry is currently not selling quality tokenized securities to professional investors and that many of the offerings we are seeing right now are bad deals. Andy claims that while security token exchanges are a very promising industry, the first step is to create high-quality tokenized assets. Fragmentation is key Tokenizing assets is certainly a revolutionary idea, but the beneficiaries of this upgrade would be mainly high net-worth individuals, respectively accredited investors. In contrast to that, decentralized exchanges feature an architecture that is indeed designed for the lion’s share of all traders. With this concept, all users hold their crypto assets on a personal wallet. Furthermore, every trade on the platform occurs peer to peer and will be executed by a smart contract. If run with high-security standards, this approach would forever make large-scale hacks, like the Mt. Gox disaster, a story of the past. Binance has recently announced its plans to launch a decentralized exchange. This has come as a surprise to many since Binance is the largest centralized exchange in the space, earning from their core business. , CEO of Binance: “I believe that decentralized exchanges are the future”. hundreds of millions per quarter In the words of “CZ” Although there are already several fully operable decentralized exchanges, most of which , they have also been heavily criticized for reliability issues and suboptimal user experience. In order to provide both secure and satisfying user experiences, decentralized exchanges might be in need of more mature blockchain constructions, that come along with the capacity to handle high-frequency trading. are running on the Ethereum blockchain The prospects of cryptocurrency exchanges are many. As the field continues to evolve at a very fast pace, and more large players enter it to get their piece of the pie, it will be truly fascinating to observe which direction it will end up taking.
