Anton Vasin, CBDO of the blockchain project Serenity, talked about his experience at Blockchain Life 2019, Europe’s largest cryptocurrency and blockchain forum, and explained why there can’t be too many crypto exchanges on the market.
This October, at Blockchain Life 2019, blockchain project Serenity presented the White Label of a cryptocurrency exchange, as well as a cryptocurrency exchanger, margin trading platform and blockchain escrow technology for Forex brokers, all of which was met with great enthusiasm from the attendees. Despite the fact that a good part of the forum participants were crypto exchanges — which reflects the current market situation — new startups continue to create more platforms and build infrastructure around them.
Aren’t there too many crypto exchanges already?
Crypto exchanges are commonly known to be part of the industry with the most intense competition. One might even think that the supply grossly exceeds the demand. However, the real market isn’t done with new crypto exchanges yet. Under the conditions of fierce competition, most crypto exchange startups don’t survive. In an emerging market, it’s a natural process.
Traders are natural cleaners of the market
One of the main tendencies in today’s cryptocurrency trading is the departure from a fundamental analysis of crypto asset prices in favor of the classic types of mathematical or technical analysis. Due to this, various kinds of automation — like EAs — are getting more popular, which effectively increases the number of traders.
With so many exchanges offering the same instruments on the underdeveloped market, arbitration becomes the most progressive sphere. It can exist both within one exchange and between several different ones. The more such arbitrators there are, the stronger the overall interconnection is, while the liquidity becomes free-flowing and universal. It ultimately propels the development of the whole market and protects it from sharp swings. One of the solutions offered by Serenity — liquidity aggregation–also works towards the pooling of liquidity.
How exchanges compete for clients
Young startups are rarely able to offer something that would lure clients from the top exchanges like Binance, Kraken, Bitfinex. However, a new exchange can create something unique to carve out a certain niche and draw the attention of a particular audience. For example, Serenity opted for building a community of experienced Forex traders. A whole ecosystem was created around the blockchain escrow for OTC markets. One of its elements is the crypto exchange that can operate as a separate unit while remaining an integral part of the ecosystem.
The central feature of Serenity.Exchange is the liquidity aggregation. It allows traders to buy or sell major cryptocurrencies at any time even with no buyers or sellers on the exchange. Orders are simply placed to one of the aggregated exchanges, nominally by the exchange itself, but actually on behalf of the client.
Competition between exchanges, of course, leads to the advancement of technology and lower commission rates. Furthermore, an increase in market participants makes cryptocurrencies less vulnerable to manipulations by the whales. Earlier it was possible to throw 100–200 million worth of bitcoins into one exchange and drop the whole market by 20–30%, then buy more of it dirt-cheap, but it becomes much more difficult now that the exchanges are strongly interconnected.
The competition within the sphere of blockchain technology also has a positive impact on trading. Right now, one of the key elements of any startup exchange is market-making (Serenity substitutes it with liquidity aggregation, which is more technologically advanced and less costly). With market making or aggregation and strong support of trading instruments, it’s possible to provide service on par with the most successful exchanges. It’s important to recognize the market tendencies a bit faster than your competitors and act on them in time. Moreover, a small exchange can integrate a new high-demand service much faster. This is what allows them to be in the competition and see the growing demand for their products.