By Edward W. Mandel
Let’s face it: There are a lot of exchanges out there. And a lot of them don’t do a lot to distinguish themselves from the pack.
What makes for even harder sledding in this crowded field is that the operators of these exchanges aren’t perceiving a lot of ways to make a distinction:
“We’re so decentralized, we outsource everything. We use cloud servers and a virtual design team. We even contracted our janitorial work to a firm in 12 time zones away. We ran out of toilet paper a month ago and all the plants are dying, but it’s worth it to be totally decentralized!”
“We’re even decentralized-er! We don’t have an office. Our mail goes to a P.O. box in the Seychelles. None of us have ever even been to the Seychelles.”
The BQT.io team isn’t going to get into a spitting contest. We’re decentralized. If other exchanges are too, good for them. It’s an important fact about us, but it’s not the sum total of who we are.
There are a litany of things an exchange can emphasize to establish their market niche or expand their appeal. At BQT, we’re focusing on the peer-to-peer market, providing all peer traders with a secure, transparent environment complete with the collaboration tools calibrated to the ideal degree of counterparty interaction.
But all that has to do less with what we do and more to do with how we do it. What I’m telling you today is that all exchanges, BQT included, need to pay diligent attention to actually being marketplaces. Strip away all the tinsel, we have to be the platform where you can trade what you want, not just how you want.
The most immediate way an exchange has to add value and establish identity is by curation — selecting the coin pairs that can be traded on a platform.
There are two schools of thought on this, which I’ll call cherry-picking and cattle-calling. That is, some exchanges follow the liquidity and only trade in the highest-volume cryptocurrencies and the most widely held reserve currencies. Others, meanwhile will trade any oddball zombie coin for Mongolian tugrik if that’s what some drive-by customer wants.
Both cherry-picking and cattle-calling are extreme. If we can dispense with the dogma that one approach is “better” than the other, then we can fine-tune a strategy that benefits the optimal number of traders at the minimal overhead cost (zombie-tugrik pairing capacity isn’t free).
And sometimes the extreme is best. Look at BitMEX. All it does is trade bitcoin core and ether classic for U.S. dollars. Well… but they still find creative way to control the traders and destroy their shorts. And yet it’s consistently ranked as one of the three largest crypto exchanges in the world. BitMEX, though, is the exception and not a long term player in my opinion. Giving traders true Hedge leverage capabilities on any crypto assets they hold to acquire other crypto assets is the key and BQT.io delivers that giving peer traders complete control of their hedge trades and assets they hold. No games…
Still, it’s fair to say that exchanges that specialize in larger transactions — those that measure success partially in terms of average volume per deal — tend to be most selective when it comes to currency pairs. Gemini, for example, has focused on the BTC/USD pair, and offers the capability of trading ether or zcash for either bitcoin or dollars — but not for each other. Just a few hours before I sat down to write this, Gemini announced a litecoin/dollar pair. But more importantly, it also announced that litecoin could also be traded on the platform for bitcoin, ether or zcash. Presumably, this opens the door for crypto-to-crypto trade across all coins. Still, at best this accounts for a dozen pairs, in Bitstamp’s ballpark.
Japanese exchanges also tend to tamp down their inventory of currency pairs. BitFlyer has only five — and Coincheck only does one, bitcoin/yen.
So who’s got the most pairs? According to the indispensable Bitgur, that distinction — hardly an honor — goes to Yobit. The data and news site describes Yobit as a “[h]ighly anonymous exchange, [which] allows USD funding without verification.”
In other words, the wild West. (Or wherever. It could be in Antarctica for all anyone knows.)
It has 940 pairs on offer. Granted, at least one-third are zero-volume or zero-value. But the top of their league table is actually more instructive. Considering that it takes special pains to be friendly to U.S. speculators, its 17 highest-volume pairs involve BTC. The BTC/USD trade is ranked tenth. The next time you see the dollar on that chart is at the 20th spot, where Yobit will help you trade it for Futuro.
And isn’t that the charm of exchanges like Yobit — or OKEX or KuCoin or Huobi? You can really place bets on anything you care to. Lisk, waves, clubcoin, hurify — you’d be forgiven for not having heard of all these, but they’re all in Yobit’s Top 20. For what its’s worth, bicoin core/bitcoin cash is Yobit’s top pair.
So where’s the right number of pairs? What’s the sweet spot between being an over-glorified wallet and an over-glorified craps table?
I don’t know. Nobody does. It’s in part a factor of your strategy — what it is you want to do as an exchange. (Also, it’s bound to change over time.)
But if you look at the number and quality of tokens available today and that there’s 50 or so exchanges that the BQT team needs to distinguish itself from, we can approximate.
Given this competitive environment and our own internal strengths, we believe we best serve the sophisticated market — traders who know what they’re doing. We don’t see the sense in reining in their instincts if they want to buy an obscure coin that I might not want to put in my own rainy-day fund. But we also don’t want to waste their time with pairs of obvious failures or frauds just to say we’re libertarian purists.
We will bring to market not a specific number of coins but a specific mix of them. Each must have a reason to exist in the market and an ability to create a community of buyers and sellers. We can facilitate, we can make it easy to trade, we can provide support. But no exchange can by itself, not even Binance, can create liquidity.
Binance, by the way, lives in the same neighborhood as KuCoin and Huobi, offering 389 pairs. The Hong Kong exchange’s top pair, by the way, is bitcoin/tether. When Beijing finally relaxes those restrictions we discussed here last week, expect Binance to suffer the most.
We can say that, at this moment, we’re likely to track volume per visitor as a metric, as the experienced traders we speak will likely be trading on accounts that exceed $10,000. In that space, most of our direct competitors have between 40 and 90 pairs. So we’ll probably start in that neighborhood and dial it up or down as our clients prefer.
But we’ll be more likely to dial up than down. Gemini isn’t the only exchange adding pairs. Bitinex added three just last week. CoinCola, meanwhile, is partnering up with Dash. The trend now is clearly to add rather than subtract.
We intend to set trends rather than follow them. But this time, it’s going the same direction we were going anyway.
Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.io P2P exchange helping traders connect with each other to leverage their crypto assets.
BQT has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.io and on Twitter as @bqt_ico.