What you need to know to create a Digital Assets or Security Token exchange
The need to issue, obtain, and trade digital assets, such as utility tokens, security tokens, or even natively digital currencies like Bitcoin — continues to grow exponentially in the last few years, developing a set of powerful, overlapping exchange ecosystems. The following article provides an introduction for businesses interested in understanding how you can plan, launch and manage a successful exchange.
The challenges of launching a proprietary digital asset exchange
The biggest challenge to creating an exchange, whether it is for trading cryptocurrencies or security tokens is to attract liquidity to your platform. Until recently, the only way out was to hire the services of liquidity providers, or market makers. These players perform arbitrage between the various exchanges in which they operate, obviously at a price.
If you opt to hire such services, two possible solutions could prevent your customers from being exposed to the worst market valuations available. In addition to preventing your business from having to allocate a large chunk of its income to pay for them, such services act as a hidden business partner, an extremely money hungry one that would consume most of your financial gains.
The options are:
1) Market makers solutions, which is typical of inefficient markets, as market evolves, liquidity providers start to disappear.
2) The next best solution that would act as a market kickstarter without the need for a liquidity provider would be joining a network of exchanges. This solution allows for sharing liquidity with other players in an organized market.
Wuzu has created the world’s first digital asset multi-exchange network. Other players offer the same service in other markets, such as NASDAQ, CME, Deutsche Borse, among others.
NASDAQ, for example, has more than 250 players connected to its network, sharing the liquidity of its assets. To put into perspective, imagine if Apple needed to register its shares in 250 independent exchanges to access investors. That would not only be extremely cumbersome, but it would also make absolutely no sense.
In terms of technology, there are three different paths to choose from
- Develop your proprietary solution.
- Buy an existing solution.
- Join a network of exchanges.
Developing your own solution is exceptionally laborious. It is essential to keep in mind that by opting for this path you will enter into a field of more than 200 different companies that have been on the market for some time.
Also, your team will face the challenges of creating a high-speed, resilient system. It must be hacker proof and available 24 hours a day. Keep in mind, you will be dealing with money, a lot of money! You will be launching an online digital asset exchange and not a webshop.
Outsourced Systems
Many companies, such as AlphaPoint, NASDAQ, to name a couple, sell exchange system platforms. Such as the matching engine, web trading platform, among others. It is important to remember that in the case of stock exchanges, such as NASDAQ, which provides a legacy system platform, that means an old and non-optimized version of the systems these companies use today. You will not have the performance that NASDAQ itself enjoys, after all, a company valued at tens of billions of dollars would not expose its industrial secrets for a few hundred thousand dollars.
The maintenance of these systems is usually expensive, and their exchange will be dependent on a network of market makers, adding to the other issues already mentioned above.
What is required to create your exchange following the shared order book model?
Although Wuzu’s SaaS solution is complete in terms of software, you’ll still need a customer service team. Additionally, you will need dedicated teams to validate entries, take care of the financial operations (deposits and withdrawals), carry out wallet operations, and compliance.
It is also essential to have a good marketing strategy, which can be outsourced.
The setup costs are negligible compared to the purchase of legacy systems, and maintenance is far less costly than the alternative of maintaining a dedicated in-house team.
Finally, it is important to remember the Fallacy of Unrecoverable Costs
phenomenon. In such cases, emotional attachment to unrecoverable costs may have the unfortunate effect of causing entrepreneurs to make bad investment decisions.
Let’s assume that you have already started your cryptocurrency exchange, attracted a good number of customers, have a great brand structure, but have been suffering from tight profits (or even losses) due to the maintenance/development costs of your proprietary system. You know that your solution is not the best but after the investment of dozens, if not hundreds of thousands of dollars in it; you might think that switching to an outsourced solution feels like you would be shooting yourself in the foot. Nevertheless, all that money was spent for nothing.
Entrepreneurs that find themselves in a situation similar to the one described above need to adopt a pragmatic and fact-based mindset. The fact is that switching to a shared order book SaaS solution will:
- Save your time and money to develop and maintain your systems.
- Your customers will have a superior experience.
- You will no longer have to pay liquidity fees.
- Your customers will no longer have access to prices that are worse than the competition.
Wuzu offers a SaaS white-label digital asset Multi-Exchange Network software for cryptopreneurs. It provides a technically advanced exchange platform that blends perfectly with your brand’s visual identity. The digital asset exchange solution offered by Wuzu is fully secured and highly customizable through which you can generate the best possibilities to yield the highest revenue. If you have been bitten by the digital economy bug and wish to launch your own exchange, look no further! Wuzu has all the expertise necessary to answer all your questions and assist you in every step of the way to the creation of your own digital asset exchange.
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