Everyone Jump in the Pool! Cross-Platform Cryptocurrency Exchanges Are Creating Liquidity
To regulate or not to regulate is the unresolved question slowing cryptocurrency adoption. Recent cooperative initiatives between regulators and the cryptocurrency industry across three continents are lowering regulatory risk. Whether or not the regulatory hand takes over, the self-regulatory winds are leading to a pick up in cryptocurrency exchange launches. The concern is with over 200 crypto exchanges currently active, more exchanges competing for trading volume could heighten liquidity risk. New cross-platform exchange models are aggregating liquidity pools and increasing trading volume in major cryptocurrencies and struggling altcoins.
Digital Assets Know No Borders
Cryptocurrencies are popular because they allow currency trading beyond the reach of the arm of regulators. Virtual money can be traded between two parties located anywhere in the world. Restrictions, holds, and other payment processing headaches can be avoided. Regulators still weary about the digital currency market, however, have been debating whether or not a heavier hand is required.
Japan the first country to regulate cryptocurrency exchanges, meanwhile, has softened its position on cryptocurrency exchanges. Japan’s Financial Services Agency (FSA) has granted the cryptocurrency exchange industry the right to regulate itself under the aegis of the Japan Virtual Currency Exchange Association (JVCEA). The Japanese about-face is a new form of cooperation between regulators and crypto exchanges sweeping the globe. In another policy reversal, a few months after the Israel Securities Authority called for the delisting of cryptocurrency companies from public exchanges, the regulator has put itself and its cryptocurrency compliance system on the blockchain to communicate with and monitor companies under its jurisdiction. Other new initiatives include the African Digital Asset Framework (ADAF) and the Virtual Commodity Association, spearheaded by Cameron and Tyler Winklevoss.
A Crypto Exchange in a Box
The more favorable regulatory environment is spawning new cryptocurrency exchanges. In Japan’s newly self-regulating regime, over 100 cryptocurrency exchanges have expressed interest in operating a cryptocurrency exchange.
These exchanges will have to fight for trading volume in a global market in which crypto asset exchanges know no borders. With no investment in infrastructure required, ready-made cryptocurrency exchanges are providing instant liquidity by connecting trade order books and analytics across global exchanges.
While models vary from a cryptocurrency exchange as a service to dApps paying established commission rates to blockchain, they all promise to get you up and running fast—essentially, a cryptocurrency exchange in a box. But these instant exchanges are not compromising on service but instead delivering trading services on par with those of the forex market.
Crypto exchanges itBit (itBit), CEX.IO (CEX), and XTrade (XRTD) are using the FIX API (Financial Information eXchange (FIX) protocol)—an API that connects equity, bond, derivatives and other financial markets worldwide—to provide cross-platform cryptocurrency trading across exchanges. With fast, scalable trading platforms and custody solutions, institutional traders will feel at home. XTrade, for instance, plans to colocate servers next to major exchanges to bring two millisecond trading execution to crypto.
White Label Service
White label exchange Birake provides not only branding but also built-in marketing support. A branded exchange can be up and running with your name on it in a few clicks with access to a deep liquidity pool. All exchanges have instant access to the Birake pool of buy and sell orders—an aggregation of all the exchanges on its network.
To promote your exchange and attract traders, affiliate and bounty programs can be run from the exchange in a box. Another interesting feature is the ability to set your own affiliate fees. For a fee, you can add new cryptocurrencies to Birake, which expects to provide over 100 cryptocurrencies.
On most exchanges, the operators set their own fees, which could provide the opportunity to offer premium services, such as proprietary pricing and analytics services. Birake’s real-time trade information includes the display of the different fees being charged across trading exchanges. Since crypto trading fees are relatively low, these value added services will be an important comparative advantage. In November, the top 100 cryptocurrency exchanges had an average daily trading volume of $13 billion. Based on an average fee of 0.05 percent, these exchanges were raking in $6.5 million each day in transaction fees.
By creating more liquidity, these cross-platform exchanges will bring more money to ICO startups and struggling alt coins. Partly owing to a lack of sufficient development funds, of the $30 billion raised by ICOs, most blockchain startups are not operational and creating value for token holders, reports CCN.
If you do set up in a regulated jurisdiction, some of these platforms help you comply by offering KYC and AML services. Institutional investors may opt for regulated exchanges. itBit, the first regulated US crypto asset exchange, has developed a strong retail and institutional investor client base. In the evolving crypto asset market, institutional investors can ensure they meet compliance standards on a regulated exchange.
Inevitably, these liquidity aggregators will merge to create even larger liquidity pools.
Merger and acquisition activity provides another opportunity to benefit from appreciation in the tokens of dApps targeted for takeovers.
