This will be a general article about how should the exchange work in order to work well. In the following articles, we will consider each aspect more specifically. Experienced Zerohub experts will help you understand such topics as risk management, liquidity, human resources, development opportunities, financial analysis, and others.
Thecrypto exchange industry is actively growing. In 2018 Binance revenue amountedto 446 million dollars, and Huobi - about 500 million dollars. The profits ofthe largest crypto exchanges are commensurate with Nasdaq profits.
Exchangeis essentially a marketplace. This form of business has a number of advantages:
The organization of the cryptocurrency exchange is a type of services to provide the necessary software for customers. The task of the developers and technical support is to ensure that the exchange is really reliable and secure, it works 24/7, and it protects the funds and customer data from theft. Since we are talking about a service, there is no need to bear anycosts for the purchase, assembly or delivery of goods or equipment, therefore the profitability of such a business is higher than many other, more material ones. The task of the owners of such a business is to provide high-quality server infrastructure, develop new functions, maintain opportunities for customers, monitor the stock exchange's 24-hour operability and solve problems promptly.
Another advantage of the crypto exchange business isthe ease of scaling. When new customers come for the goods, this means that weneed to increase production volumes. That is to purchase more raw materials,open new lines and workshops. In the case of crypto-exchange, everything ismuch simpler — in the digital business there are no suppliers and production,which means your costs do not scale with the growth of customers and income.This makes the cryptocurrency exchange more promising niche in terms of profitability.
Of course, it's not that simple. To serve a really large number ofusers, you will need a large staff of customer support. In general, staff costswill increase as trading volumes rise. But still, this growth of costs will lagbehind the rate of profit gain.
There is always a risk that all servers will fail and information may be irretrievably destroyed. Solution: reliable backup protocol, preferably for another data center elsewhere. Therefore, it is important to make backup copies on time. You must either encrypt this data or otherwise ensure that access to it is properly protected. Backup protocols should be checked from time to time to ensure that data can be quickly recovered.
Another serious risk is hacking or unauthorized access to infrastructure by intruders. Loss of funds can be a point of no return for the business, so you need to avoid this danger by all means. To prevent loss of funds, make sure that the software and infrastructure are protected from vulnerabilities. You must have a security department, a verification code running on production servers. Programmers should be trained to recognize vulnerabilities. System administrators should monitor the system and track any unusual activity. Ideally, an external security audit should also be carried out.
The main goal of the attackers — the funds that the exchange keeps on behalf of users. To cope with this risk, you need to distribute funds between hot and cold wallets. Hot wallets should be used for quick depositing and withdrawing. Cold wallet for storing the main part of the funds, since it is impossible to crack it.
Infrastructure failure. When the number of users is growing, but the infrastructure is not ready for such loads. To prevent this, plan strategists carefully, scale and perform simulation tests with high system load. Therefore, the best time to start is usually crypto-winter / crypto-spring, when the number of users is not growing very quickly, which allows for all kinds of training and testing.
The main source of income is trading fees - a small percentage that the exchange takes from each customer transaction. Charged upon completion of the transaction from seller and buyer. Usually, it is 0.1-0,3% of the transaction. The more trading volume you have, the more profit you get.
Deposit and withdrawal fees.
Users must deposit their funds in a crypto exchange account for trading. After completing the necessary operations, they withdraw funds from the exchange account. The exchange can charge a fee for withdrawal or deposit as a payment for processing the transaction. Such kind of operations have its on costs. Crypto exchange has to pay commissions to payment processing providers. But you still have an opportunityto get margin.
Coins need it to expand coverage and increase liquidity. So, a crypto exchange can get charges for the fact that a new cryptocurrency will be traded. The higher the status of the exchange and better the reputation, the more expensive this fee can be.
An alternative to the ICO is the initial proposal to sell the coins of a new project on the exchange. The exchanges charge for the placement of the initial exchange offer, as well as their percentage of coins offered.
Advertising, affiliate programs can become profit sourcers as well.
Organizinga cryptocurrency exchange startup costs about $ 2 million — about $100 thousand dollars will cost the market analyst, hiring staff, another $1.5million will be the cost of developing the platform. You will also need extra money for marketing, technical support.
A ready solution of the exchange platform can be purchased from the specialized development company. In Zerohub price strats from $ 30 thousand. The solution can integrated and customized in just a week.
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