Canadian Cryptocurrency Landscape Analysis and Outlook
“What cryptocurrency should I buy” and “Where should I buy cryptocurrency in Canada” are often the first questions I’m asked when friends find out I work in the cryptocurrency industry. I stumble when answering the second question not because there are no options in Canada, but there is no clear preferred choice. In this post, I want to share my perspective on the Canadian cryptocurrency exchange landscape, the motivation that drove me to co-found PayTrie, and my outlook for the near future. This post references the Canadian marketplace for cryptocurrencies, and may be relevant to other geographies, but I will mainly focus on Canada.
Fall of Quadrigacx and Einstein
Canadians have been notoriously fleeced by cryptocurrency exchanges. The infamous death of Gerald Cotton and the fall of QuadrigaCX captured international headlines for 2019 and have put off many Canadians from ever investing into cryptocurrencies again. As the largest Canadian cryptocurrency exchange at the time, over $250 million dollars was wiped out from the ecosystem, much of which were entire cryptocurrency portfolios. As the saying goes, “not your keys, not your crypto” rang very true in this case. Users decided to keep their cryptocurrency or Canadian dollars on QuadrigaCX for a multitude of reasons. One I identified with personally was the ability for users to get in or out of a position quickly when the market moves. As we’ve seen in 2017 and 2018, market movements of 20%+ on any given day was not unusual. The time delay in getting funds into and out of exchanges quickly created a need for funds to be readily available on exchanges. People wanted to react quickly to market opportunities. This created a strong enough justification for many to leave their funds in the hands of Gerald, which at the time seemed safe. In hindsight, many have learned from that costly mistake. Not long after the fall of QuadrigaCX, Einstein Exchange, another Canadian cryptocurrency exchange, went out of business. Along with its demise, Einstein took with it all available cash and cryptocurrency, totalling over $15 million of lost user’s funds.
Canadian Cryptocurrency Exchange Options
The reputation for Canadian cryptocurrency exchanges cannot get any worse. Exchanges are wash-trading or faking volumes to give an illusion of bustling activity. To help better answer the question of “Where to buy cryptocurrency in Canada?” I grabbed a list of “recommended” exchanges from /r/BitcoinCA to analyze their fees and service level. As an exercise to determine the true cost and time it takes to purchase cryptocurrency in Canada, I simulated buying $500 of Bitcoin and promptly selling it back for Canadian dollars.
The total fee column represents the total cost including deposit, withdrawal trading cost, and spread.
Few exchanges will allow you to execute this exercise in a same-day manner, with the exception being ShakePay and PayTrie. All other exchanges have long deposit or withdrawal wait times to fulfill this particular simulation in a timely manner. Some exchanges may also withhold funds for a number of days before releasing to the user.
The motivation for this particular simulation design is that I wanted to demonstrate alternatives to leaving funds on exchanges for quick market reaction. Exchanges should only be a place for you to execute trades and not a place to hold funds. There are many other ways for users to hold cryptocurrency that are better than exchanges, including but not limited to hardware wallets (Ledger, Trezor, KeepKey, CoolWallet, etc.), Mobile Wallets — non-custodial (BRD, Jaxx, Argent, MetaMask, and many more), or something as crazy as Cryptosteel.
Unpacking Exchanges
Another interesting observation I saw when I first started working on PayTrie was that Canadian exchanges generally served two purposes.
- Getting Canadian dollars in and out of our bank accounts
- Trading Canadian dollars for cryptocurrency.
Liquidity is fragmented across regions and exchanges. Because of this fragmentation, price discovery and mismatch in prices often occur. As you can see from the table above, every exchange charges a different price for Bitcoin, with differences upwards of hundreds of dollars per Bitcoin. Due to this reason, Canadians are generally not getting optimal market price for their cryptocurrency.
The way the market works in Canada and in many parts of the world perhaps creates a fragmented system of trades where liquidity is dispersed into localized regions. Because of this fragmentation, price discovery and mismatch prices have occurred. As you can see from the chart above, every exchange is charging a different price for BTC, which can have a difference of hundreds of dollars per BTC. Because of this, Canadians are not getting market price for their cryptocurrency purchases.
I started PayTrie with the ambition to make Canadian crypto-exchanges better. Previously I had worked in many of the largest Canadian banks and most recently at ConsenSys, one of the largest blockchain companies in the world. Continue reading if you want to learn more about what we’re building at PayTrie.
In recognition of the two distinct purposes of an exchange, PayTrie’s mission is to optimize getting Canadian dollars in and out of bank accounts, while leaving other centralized exchanges and a new breed of decentralized exchanges to optimize the latter. At PayTrie, we specialize in using something called a stablecoin. A stablecoin is a unique type of cryptocurrency that is pegged to a currency like the US dollar.
The first stablecoin available on PayTrie is MakerDAO’s DAI. Each DAI is soft-pegged to 1 US dollar. Due to the soft-peg, there are circumstances where the price of DAI deviates from a 1:1 representation of the US Dollar. However, there are levers that MakerDAO token holders use to realign the price. Being an ERC-20 token, DAI allows you to make instantaneous trades using decentralized exchanges like Uniswap, Kyberswap, DEX.AG, for other ERC-20 tokens in the Ethereum ecosystem. Kraken also has a BTC/DAI and a ETH/DAI trading pair that allow you to directly buy BTC and ETH with DAI. In 2020, PayTrie will offer other stablecoins to provide Canadians with wider access to markets with higher liquidity and better pricing.
Optimizing Fiat Funding
When we designed the user experience for PayTrie, we made design decisions which prioritized speed and simplicity for our users.
We chose Interac e-Transfer as our primary funding method due to its speed and familiarity with Canadians. We are able to process e-Transfers in under a minute for most transactions. There are special circumstances where your bank chooses to delay e-Transfers up to 30 minutes to screen the transaction for fraud. To enhance the user experience further, we use a specific Interac e-Transfer feature known as Request Money. When buying stablecoins from PayTrie, you will receive an email directly from Interac for the exact amount that you need to send. In the email, you then select the bank you want to fund the transaction with. At no point does PayTrie ask for your banking information, providing you with an extra layer of privacy protection. Everything is handled by Interac and your own banking application. This payment method also decreases human error by removing manual inputs from the transaction required from sending Interac e-Transfers.
Reimagining KYC
Another pain point that was identified is the painful on-boarding experience. The requirements to upload documents, take selfies, and provide banking information is a dreadful experience for many users, especially those who are privacy conscious. At PayTrie, we introduced a new on-boarding experience where identity verification would no longer require any of the above information. We call this service Express Verification. Working with our credit bureau partner, we pull a soft credit check and generate a series of personalized questions that only you would know the answer to. Express Verification does not impact your credit score. PayTrie works with the credit bureau to relay the question and answers and at no point in time does PayTrie have access to your credit report, or answers to your personalized questions.
If you are able to answer the questions successfully, your account is immediately verified for transacting on PayTrie. The ability for any Canadian to go from zero-to-crypto in under 5 mins is truly a breakthrough in the Canadian market.
Next Decade for Cryptocurrency
PayTrie encourages people to own their own funds. This best practise encourages users to take ownership of their assets and reduce the need for centralized custodial services. Increasing stablecoin accessibility will encourage real world cryptocurrency use cases, thereby capturing some of the value previously monopolized by large corporations like banks.
Use cases of stablecoins besides trading include faster and cheaper peer-to-peer transactions, cross-border transactions, payment processing, hedging crypto positions, and hedging currency risk. Imagine being able to move any amount of money around the world for a fraction of a penny. This can be done using stablecoins built on the Ethereum network right now.
With the proliferation of on/off ramps around the globe, the network would collectively solve the problem of correspondent banking. This eliminates the need for SWIFT and Western Union from monopolizing cross-border transactions and charging exorbitant transfer fees.
There is opportunity to make cryptocurrencies more usable and PayTrie is in the forefront of it. In 202, look out for more services that will integrate PayTrie to bring crypto to the masses!
If you’re interesting to work with us, please send us a message at partnerships@paytrie.com
* All data is representative of information collected at the time this article was written. The information collected was through best efforts publicly available from their respective websites. If any of the information is incorrect, please send me a note with a source for the correction, and I will promptly update it as necessary.
