A comprehensive fundamental analysis on Kucoin
So, what is kucoin or KCS?
Report by Ink/@CKTSUNE
Explaining their exchange platform structure and Kucoin utility.
Their website: https://www.kucoin.com
Their white paper: https://assets.kucoin.com/kucoin_whitepaper_en.pdf
My referral link: https://www.kucoin.com/#/signup?r=E36Ay8
Quick disclosure, nothing in this article should be considered as financial advice, this is purely my opinion and my research alone, take it with a grain of salt.
It’s an up-and-coming cryptoexchange that is like an integration of COSS and Binance. The problem with COSS is that there is little incentive for investors to use it, the UI is lackluster, it lacks proper charting tools, the previous CEO was known to be part of pyramid schemes. Binance, a similar Hongkong exchange is something that we can also compare KCS to, the BNB token offers the utility to reduce fees, but again there’s little incentive to actually have BNB tokens are use the Binanance exchange. I elaborate further on the advantages the Kucoin will have over other exchanges below.
Kucoin has similarities to COSS in that 50% of fees that they charge are returned to the holders of KCS everyday at 12am. Holders of KCS get access to other perks such as trading fee discounts similar to BNB, customer-service fast passes and more. I also need to highlight that the 100m that is being with-held for 4 years and 30m of which is locked up for 2 years belonging to the founders/investors respectively ARE NOT subject to the 50% re-compensation of fees which normal traders/investors earn. Which means that only the current 100m supply for the next 4 years is eligible to receive the *dividends* from KCS.
Kucoin has a long-term goal of becoming a decentralized exchange(DEX) or integrating as much of it as they possibly can within their ecosystem, a point that I’d really like to highlight is that recently there has been a lot of news/FUD around exchanges like Bittrex and Bitfinex banning users, Finex have already disabled US citizens access to trading on their platform, and Bittrex is a US exchange, so who knows when they’ll have to close their doors to US citizens, they’ve even gone so far as to ban people from middle-eastern nations, however decentralized exchanges are on-chain and there is no governance or need to store funds on centralized exchanges to risk being hacked, as well as lawmaking bodies having no jurisdiction over them. There are currently withdrawal limits on accounts but the developers will be removing those very shortly, Kucoin has extremely fast transfer times with lower amounts of confirmations for speedy deposit/withdrawal, low transaction fees of 0.1% with special events where some coins are free to trade, such as WTC/HSR as of now.
The user interface is amazing compared to most exchanges out there, they enable trading view charting which is much better for traders to use compared to charts such as on Bittrex or Binance which have a very limited selection of charting tools, there are some kinks on the website such as the orderbook, however I have had a talk with the developers and they said that they were looking for “more elegant ways” to display the orderbook than just a scrollbar, they were also looking into producing a nightmode which is a god-send for night-dwelling (night-traders).
The Kucoin team are extremely active and have nearly 24/7 support, you can go into their telegram and ask them any question and they’ll answer you hastily and earnestly.
They also have an invitation bonus which is as a referral compensation program, basically for every person that YOU invite, you get 20% of the trading fees of the person you invited as an INCOME, and then 12% of the trading fees of the people that they invite. (I know you think that this reeks of a pyramid-scheme, however, I need to highlight that the KCS team do NOT benefit at all from this referral program as they actually LOSE money if OTHER people/users are using these referrals.) It is an attempt to bring more volume and traffic, but traders/investors only stand to gain from this, we have absolutely nothing to lose, the more friends you invite the more income you can have. (Some people are calling this a pyramid scheme, however it’s simply a marketing tool, I brush up on this in the second half of the article)
Right now, KCS is flying under the radar, it hasn’t even been added to CMC yet (they are getting it added very soon) and once it does we do expect to see a lot of hype, there will be a very huge in-flux of traders who would come to the exchange, I see this as the death of COSS, no one will go back once they try out KCS.
Let’s talk about the valuation of KCS, currently there is 200m supply cap, eventually over a long period of time the KCS team will buyback KCS (optional to sell to them) with the profits made from trading fees to the burn the supply until there is only 100m left, don’t be alarmed by this, there won’t be a sudden supply restriction of 100m over one night, its something that will probably take a decade to achieve, if not even longer. Who knows for sure, right so moving on; KCS is currently valued at approximately $0.6USD at 200m supply thats around $54m USD market cap. It’s only been out for under a month and the ICO price was $0.3USD(5000 satoshis) or around there, so it has doubled and a medium-high marketcap of $54m but lets compare the price to Binance, which is currently $1.27 through all of the FUD/FOMO on Bitcoin/bitcoin gold/2x. Token supply of 200m like, similar to KCS, was valued at its peak approximately $2.58 per BNB reaching a total market cap of around $270m, and it doesn’t even have the same features as KCS. So, KCS is currently valued at $0.6USD, with all of its amazing features, team, dividend payout, referral program; I believe has the potential to grow even larger and maintain its price. If not more. I do see this as a huge long-term project, it’s the mainstream exchange killer, it’s like the oneplus versus Apple and Samsung, if we actually evaluate the coin and the Kucoin exchange itself within its ecosystem it has nearly unlimited potential.
One of the common misconceptions and concerns is that traders have is, is Kucoin a MLM/Pyramid scheme?
What we have here is one of the posters on their website promoting an invitation/referral compensation program. The initial impact of the image makes one think that it is a pyramid scheme, but if you actually look closely you’ll understand that in actual fact Kucoin themselves don’t really benefit at all, they’re giving 90% of all of their fees to the referee as compensation while they only take 10%. This isn’t a pyramid scheme or some shady MLM, it’s a marketing tool to attract more traders and liquidity to the market. The only people who really benefit are the traders.
Getting straight to the point, it has a picture of a pyramid, but it isn’t a pyramid scheme. I need to highlight that the referral system is completely optional, you don’t need to invite anyone or spam your link, I understand that it does get annoying for people. It is a marketing plan aimed at being a liquidity attraction tool to try to hook more traders into using the exchange, but people are so stigmatized to the shape of pyramids that they fail to see the truth behind the curtains.
I’d like to go through the business model and ecosystem of exchanges, and as objectively as I can compare the difference between each exchange.
So for this example I’ll use 3 exchanges:
I’d like to make a fair evaluation of these exchanges based on three things.
1. Trading fees
2. User friendliness
3. Trading tools.
First, some more assumptions Kucoin is still in its early stages of launching as an exchange, I’ve talked to the developers and they will be adding in “more elegant ways to see the orderbook” and stoploss/take profit systems.
5-point evaluation: very good, good, mediocre, bad, very bad.
A. 1. Mediocre-Bad (0.25%) 2. Good 3. Mediocre-good.
B. 1. Very good (0.1%) 2. Good 3. Good
C. 1. Mediocre-Bad (0.25%) 2. Good. 3. Mediocre
If someone wants to refute these evaluations, please feel free to do so.
Some other underlying assumptions are that each exchange has the same amount of trading volume daily; $100m. Each have the same variety of coins listed.
Given that information, which exchange would you personally as a trader gravitate towards; try to be as subjective as possible. If my evaluations are wrong, let me know and I will amend them.
You would inherently choose B. Correct? There is a recurring argument that the token offers no utility, the truth in the fact is that very few tokens offers anything at all, BTC is simply a speculative asset with no intrinsic value, and that’s it. I haven’t introduced the token dynamic just yet, so hold up.
Going back to the MLM/Pyramid scheme aspect of it. For something to be a pyramid scheme it has to have an initial buy-in where the grunts at the bottom purchase a product, and it has to directly benefit the upper echelons id est the developers/the exchange.
Does Kucoin meet any of those requirements? Not really. The referral program doesn’t require anything, you don’t need to hold Kucoin to be eligible for the 20% of fees that you’re earning from people you invite. It’s completely optional with no buy in, no product to sell. You can just use the exchange, or even invite people to get the referral bonus, then forget about it, and as they trade on the exchange you earn a % of those transaction fees passively. In fact, the Kucoin team loses from this marketing. Because they’re essentially giving a cut of the fees which they should earn back to its traders. Bittrex/GDAX don’t offer anything at all, they simply take 100% of all fees they have and put it in their pockets.
A. Bittrex pockets all transaction fees it earns from traders on its exchange without any compensation to traders.
B. Kucoin offers an optional referral promotion whereby referees earn a % of fees that are incurred by the referred to the referee as compensation to help bring more liquidity to the exchange. This is actually detrimental to kucoin as they earn less income from transaction fees by giving it to the referees.
C. GDAX pockets all transaction fees it earns from traders on its exchange without any compensation to its traders.
If you believe that this statement is incorrect, or overly subjective please speak out.
Now, the issue with the token. Some people are saying that it has no utility; I’m going to prove that it does have utility.
A. Bittrex does not offer a utility token which reduces fees, or returns any portion of their income to traders. Of $100m trading volume they pocket $250K a day.
B. Of all Kucoin token holders, 50% of all transaction fees earned by the exchange are transferred nightly at 12AM to Kucoin token holders. Of $100m daily trading volume they pocket $50k, while the other $50k is transferred to its token holders.
C. GDAX does not offer a utility token which reduces fees, or returns any portion of their income to traders. Of $100m trading volume they pocket up to $250K a day.
If there’s a problem with my calculations, please let me know.
Now I need to ask, is there value in holding the token? It is a speculative asset, which provides utility in generating returns for the holders of the token on the exchange. As far as tokens/coins go I’m fairly certain that this token has utility, it doesn’t just offer a cut of the 50% of daily trading volume as income but can also act eventually as fee discounts similar to BNB, as well as simply holding it will grant you support-fast access(Give that their support team is already very fast, that’s something to consider).
There is also no inherent need for the token, Bittrex/GDAX are already largely successful even without utility tokens, so why is Kucoin going out of their way to even lose up to 50% of their income?
The answer lies in liquidity, and competition; the utility token, the referral compensation system, they are all liquidity attraction tools. Exchanges make money based off how much transaction fees they can incur through the amount of daily trading. How does a new exchange compete with big wigs like Bittrex/GDAX? These are huge giants who have been in the game for a long time, but they’re some-what obsolete. They’re greedy and only care about themselves, have horrible customer-service and poor communication within their community. Kucoin offers more than that, you can go talk to its active development team in their telegram, bombard them with any stupid question you like, and they will respond.
The token, the referral system are liquidity attraction tools, even if they only get 50% of all trading fees as income, if they can attract more liquidity than other exchanges and become competitive they can also be big, furthermore we as investors holding the token don’t lose anything at all, in fact we get a cut of the 50% of the trading fees they earn. I’ve already received my first dividend last night at 12am, it was basically nothing but that is considering that they only have a trading volume of $1.1m a day approximately, if not less. If that was $300m, the number of dividends anyone would get would be 3-fold.
What to take away from this; it seems like an MLM/Pyramid scheme on the surface, but the developers do not directly benefit from giving traders a huge cut of their profits, their main goal is liquidity and competition. The token value is also a long-term goal, I should reiterate that there is currently only a total supply of 200m which will over a course of a very long time will be reduced to 100m, but that will be a very long time from now, 100m of the current supply is locked up for 4 years for the team/2 for advisors. As well as, being locked up they aren’t eligible to receive any of the 50% cut of the trading fees until AFTER they are released.
I see this as potential big opportunity, purely because in the future I can see the possibility of this becoming a very competitive exchange within crypto-space. This is without a doubt a shill, I’m not partnered with them or anything, but I felt like I needed to clarify what a pyramid scheme is and the distinction between Kucoin’s marketing model and an actual MLM like Amway.
The dividend model (50% of trading fees are given to the KCS holders)
I’d like to also go through the dividend model, every night at UTC+8 12AM, they deposit directly into your wallet address your share of the 50% trading fees that they earned from transactions during the day. The current daily trading volume is around $1.1m, having a look at the screenshot below, if Kucoin can achieve competitiveness and run up next to some of the biggest names; Bittrex with $350m daily trading volume, you can expect that all of the dividends you earn will go up 350x as well. I’d like to also point out that the more popular the coin is the more transactions there are thus; you are always earning income in the most popular coin, no matter what it may be.
More on the utility of Kucoin (White paper abstract)
To improve user involvement and exchange vitality, Kucoin is going to award incentive bonus, which equals to 50% of the total trading fees charged by the platform, to users who hold KCS in their accounts. Please note that this award proportion could be adjusted based on the actual situation in the future. The initial amount of KCS is 200 million among which 100 million owned by the team and angel investors would not be taken into account when calculating the bonus. In addition, we guarantee that at most 100 million KCS be calculated in the bonus plan during official buy-back and destruction. To obtain the daily bonus, users would need to deposit their KCS into Kucoin Platform. Then the platform will conduct accounting and award bonus based on to the KCS holdings in user’s account at 0:00 (UTC+8) that day and all the trading fees charged to the platform on the previous day.Then the bonus gained by users will directly put to their Kucoin accounts in the corresponding currency. For instance, If ETH-BTC cryptocurrency pair rate is 0.063 on the platform and the daily exchange volume is 30,000 BTC; based on the 0.1% rate from each side, the platform shall charge 30 BTC and 476 ETH as trading fees. The bonus for every 10,000 holdings would be 10,000 by 100,000,000 (0.01%). So that the daily bonus from this very cryptocurrency pair is 0.003 BTC and 0.0476 ETH (1 BTC and 17 ETH annually). Please note that this is ONLY the ETH-BTC exchange pair BONUS. Other than ETH-BTC, there are still various cryptocurrency pairs on the platform, which creates the trading fees in the corresponding currency and bonus based on the description above.
TRADING FEE DISCOUNT When placing orders to trade, holding a certain amount of KCS in Kucoin account can lower the trading fee. Details will be published through announcements.
OTHER EXCLUSIVE RIGHTS When KCS holding reaches certain levels, users can enjoy special services like one-on-one investment consultation, customer service Fast-Pass, etc.
Full transcript of my Q&A with the Operation Director Kent Li
Two concerns were put fourth by some of my readers;
- How do we know that we are actually receiving the 50% that you are guaranteeing us?
- In the whitepaper it is stated that the 50% of trading fees traders on the platform will earn is subject to change, what is the reasoning behind this?
Kent Li — Kucoin — Operation Director, [22.10.17 00:35]
Firstly, the users are actually getting 50%. The trading volume of each pair is transparent, people can get the data from the web page or through our public API endpoints. So there’s nowhere to hide if we cheated on this, people can easily calculate their Kucoin Bonus based on the formula we described in the whitepaper.
Kent Li — Kucoin — Operation Director, [22.10.17 00:39]
Secondly, many people have discussed our referral system. The reason why we design is like what you have said, to attract more people to come trade on Kucoin. Because we’re new comers in this industry even in China, we have to do everything to attract new users and become competitive in the space, that’s why we share 90% of our trading fees to the users. We want to survive. And we are working our asses off to achieve this.
CKTSUNE, [22.10.17 01:15]
Thanks for that clarification! I’d also like to inquire about the rate of dividends that investors earn, currently it is at 50% and in the whitepaper has been stated that it will be subject to change, how long is the 50% bonus going to last? Some of my readers had told me that it will only be for around 6 months, you intend on reducing the income as your exchange becomes more popular correct?
CKTSUNE, [22.10.17 01:16]
Also, what is the purpose of the income page in the “Assets” menu, currently all fields are blank, what are your plans for that?
Kent Li — Kucoin — Operation Director, [22.10.17 01:18]
Hi, we do have a plan to reduce the ratio of Kucoin Bonus. It will stay at 50% for at least 6 months, and it will be adjusted gradually, eventually it will be 15% after two or three years. As you know building and maintaining a high volume exchange will cost a lot of money. “Income” currently contains the GAS reward if you hold NEO on Kucoin, Income is also passive revenue if users hold certain kind of asset on Kucoin.
CKTSUNE, [22.10.17 01:19]
In regards to the calculation in the white paper, it may also be beneficial to have a dividends tab in the assets page to show users how their dividends are being earned and the calculation behind. (I understand that this is a lot of work, and you guys are extremely busy, these things definitely do not get done overnight so do not feel pressured at all)
Kent Li — Kucoin — Operation Director, [22.10.17 01:20]
Ah, actually we have a better plan
Kent Li — Kucoin — Operation Director, [22.10.17 01:21]
There will be a dashboard or report page for users, it will display their profolio on Kucoin, their daily gains & losses, sort of this kind of things
CKTSUNE, [22.10.17 01:21]
Thank you for that clarification! I’d know like to move onto some suggestions from my readers on the exchange, talking to a great many traders, they all agree that the exchange is better than up to 80% of the exchanges available. It’s intuitive, innovative and user friendly.
Some points that were brought up were; the non-existence of a “scroll bar” for the order book, which one of your other developers already said you were after more elegant solutions. Others would be including the placement of the chart, some people were saying that it was a little too small.
CKTSUNE, [22.10.17 01:22]
If you would like to share any plans with me, I would love to include it in my article, and if you could retweet it or pin it on your twitter. I’m sure it will bring a lot of people piece of mind.
CKTSUNE, [22.10.17 01:24]
It’s definitely understandable that making sudden changes to the UI of the exchange isn’t something to be done over a night, so I’ll definitely highlight that, I think this is just an important step in gaining the trust of the community.
Kent Li — Kucoin — Operation Director, [22.10.17 01:25]
Yeah, things have to done step by step
If anyone has any concerns I urge you to approach the developers directly on their telegram, they are very responsive and professional.
This was my first ever, write up on a large project, if there’s any feedback that anyone is willing to give then please by all means direct message me on twitter @CKTSUNE and I would love to hear your thoughts on the project.
If you found this helpful, please do feel free to use my referral code: https://www.kucoin.com/#/signup?r=E36Ay8
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