Launching Savings Account on OkCoin Crypto Exchange
Disclaimer: I wrote this piece before joining OKCoin USA as a Product Manager with little-to-no knowledge of real data and used a lot of assumptions to come up with this. It hasn’t been updated since then due to obvious reasons.
General thoughts and objectives
- Introducing Saving Accounts may bring new users to the platform, especially those who are HODLing funds on other exchanges and getting 0 incentives.
- Apart from using this new feature, there is a big chance that new segment of users will eventually trade something on OkCoin as their liquidity is there, available instantly.
- There are a few ways to increase revenue: from getting a commission cut from earnings (fair marketplace model) to setting conditionally guaranteed APY (aka Coinbase) and getting the difference between funding rate and that APY.
- Chicken and the egg problem. Will there be enough demand to start the guaranteed APY option? If not, the exchange can provide liquidity to other platforms (even own platform in other jurisdictions) to solve that problem.
- What is the APY among competition and can we beat them(Coinbase, Bitfinex, Compound Protocol, Defi)?
- Is there a way to insure funds / offer custody? Obviously to match the competitor’s (coinbase) offering.
1. Opportunity Evaluation
I’d assume that OkCoin’s business goals are :
- Bringing new users and liquidity to the platform
- New Revenue channel from this feature
- Increase of revenue due to the influx of capital = more trades = fees
To evaluate the opportunity, I will deconstruct the idea into customer behavior pieces, usually representing healthy product stages and ask myself if the idea can impact any of those pieces. I really enjoy using Startup Metrics for Pirates (AARRR) so let’s try doing the following:
As we see from this table, this new feature not only valuable by itself but also impacts overall company’s funnel. The most important is that this feature will drive users from other exchanges acting like a marketing channel.
Strategy & Estimations
- Numbers file with all calculations available here
Considering Coinbase is the leader in the United States, OkCoin will be dealing with Market Challenger Strategy and specifically doing Encirclement Attack, meaning that OkCoin will increase offering value (in our case APY) and identifying areas where the competitor is underperforming and push its marketing strategies in that area. This strategy requires capital, like any late entry strategy.
Let’s get to numbers.
- How many new users can we get by launching this feature?
Coinbase currently signs up ~ 500,000 users each month while this number declines (they are reaching market capacity), however, I should stress that most of the Coinbase traffic doesn’t come from paid acquisition and new users are going to Coinbase because it is well-known as a leader. My opinion is that we should look at smaller US exchanges that are still paying for acquisition and estimate their Sign Ups, taking that number as a best-case scenario for OkCoin for now.
Looking at Coinbase vs Kraken we see a huge difference in traffic which I’ll consider in my estimations.
20.71M : 3.09 = 6.7 : 1 ratio of popularity between those exchanges. With that, I assume that while Coinbase gets 6.7 users Kraken gets only 1.
Direct traffic for Kraken is 69% which is definitely not Acquisition channel, so I will focus on the traffic left.
Here is a quick calculation:
Coinbase Sign Ups = 500,000 /month
Coinbase to Kraken traffic ratio 6.7:1
Possible new traffic for Kraken 31%
Estimated amount of Kraken Sign Ups = 500,000 / 6.7 * 0.31 = 23134
Next, there are ~30 million crypto traders/investors in the US according to this report. I will assume 3 scenarios of user acquisition: 5000–23000 new customers signed up during the first month after launch with a growth rate of 5–15% per month.
Numbers might be a bit low, however, considering that OkCoin USA has only ~$6M trading volume daily it is fair to assume that user acquisition is a tough process and OkCoin is starting from scratch on the market where other players have been playing for 4 years.
- How much can OkCoin earn?
As I’ve mentioned above there are a few ways to capitalize on this feature: take a commission from earnings OR guarantee APY and capitalize on the difference between proposed APY to customers and real funding rate. I will go with the option which defines guaranteed APY as it is user-friendly, allow users to manage expectations and is very similar to what banks are offering.
By looking at competition Coinbase offers the lowest rate (1.25%) available on the market, which is reasonable considering their trust level (analogy with Swiss banks). Other players offer 6–8% APY (BlockFi, Nexo, Compound Finance). I don’t want to go into calculations if that funding rate is reasonable but I assume that if those players can do the APY mentioned above then it is possible.
So worst-case scenario even if OkCoin offers 4% APY there still will be room for about 3% revenue.
Customer Acquisition Cost
Considering OkCoin is really small in the US, I’d assume that the biggest acquisition channel would be paid marketing and will include CAC into my revenue calculation. From what I’ve seen in the industry you can acquire User for roughly $50. Over a period of time I am assuming non-paid channels will come up (like referral) and acquisition will start reducing by 4% Month Over Month.
The formula of Monthly Revenue Estimation is gonna be:
Monthly Revenue = Real APY % ˗ APY % for users * Total Deposits into Savings Account ˗ CAC
In order to estimate what will be the average deposit into Savings account I will use the following formula:
Total Deposit = Crypto in hands of US investors / Amount of Investors in the US * Projected New Users
Crypto in hands of US investors = Market Cap of Supported Tokens by OkCoin * Distribution of crypto traders by Country
Actual Estimation
Now we know that average portfolio size for of Addressable Investor by OkCoin is ~ $2800. Final formula shows 3 possible revenue scenarios.
2. Wireframe / UX
- Full resolution Figma file available here
- Clickable Principle Prototype available here
- Video of Prototype (embedded below) available here
Video of Savings Feature Prototype
3. Success Metrics
(Sorted by Importance top to bottom)
Q: How many new users we brought with the new feature?
Metric: % of those who came from marketing campaign related to new feature and made a deposit into Savings.
Q: Can we sustain growth?
Metric: LTV (deposit fees + trading fees)> CAC x 3
Q: What’s the % of feature users are churning
Metric: Churn rate
Q: How much are we earning
Metric: Revenue by day / week / month / year
Q: How many deposits are happening daily / weekly / monthly
Metric: Deposits into Savings daily / weekly /monthly
Q: Is a new feature contributing to overall platform success?
Metric: Compare two funnels from signup to first trade segmented by usage / non-usage of Savings Account
Q: How often feature is used among users?
Metric: % of total active users who have > 0 in Savings Account
Q: How much market did this feature penetrated?
Metric: % of users from the amount of crypto investors
Q: Are users who used this feature retain better?
Metric: 30-day retention of those who deposit into Savings Account
4. Conclusion
As with any market where competitors have already established and own big part of market share launch of new solution requires lots of capital, proper execution and identification of both competitors’ weak points and key value for users. I believe that a combination of competitive APY and visible segmentation of OkCoins solutions for Retail / PRO investors in the US will create a new revenue channel for OkCoin and a threat for Coinbase over time.
