Cryptocurrencies are trending, and the way cryptocurrencies and blockchain technology have proven their potential, they are certainly here to stay in the long run. With the growing popularity of digital currencies, the demand for cryptocurrency exchange platforms is also rising.
A Cryptocurrency Exchange facilitates buying, selling and trading of various digital currencies. These online platforms function in similar ways to brokerage platforms that offer tools to the users to get, sell and exchange cryptocurrencies like Ethereum, Bitcoin and other altcoins.
If you're looking forward to carving a niche for yourself and making a tremendous profit by setting up a cryptocurrency exchange, you probably are at the right place. Here’s our consolidated guide to cryptocurrency exchange development.
There are two types of exchange platforms; DEX (Decentralized Exchange) and CEX (Centralized Exchange). Though both of them exist with some fundamental differences, it is vital to know about them.
Centralized exchanges are custodial, which means that the users do not own their assets directly and entrust them to the exchange platform. These exchanges offer ease of use and better liquidity and also allow an exchange of fiat currency for digital currencies. In addition, these exchanges are partially regulated, do not offer anonymity and are more secure.
CEXs mostly work like any other public or private sector banks, and to start using the services of a CEX, each user must undergo a mandatory registration and a complex verification procedure.
On the other hand, Decentralized Exchange is a non-custodial way to own and trade digital assets without any intermediary. They offer users complete ownership of coins and private keys, but these platforms are complex to learn and use for beginners. Also, DEXs do not allow fiat payments and offer limited liquidity.
To start using the services on the decentralized exchange platform, users need to register on the exchange and then go through the identity verification process.
How to develop an exchange platform;
Planning is the key to success for any new venture. Without a firm idea in mind, it becomes difficult for teams to understand and come up with the desired objective. So think over the minor details of the project and plan activities in advance.
Legal requirements, technological architecture, monetization strategy, typical agreements and policies, products, cross-platform services and funding are some crucial details that need to be worked upon well in advance.
To understand all regulatory and licensing demands for the new venture, it is necessary to seek legal counsel.
- Find a technology solution provider
There are customized turnkey solutions available today for all the entrepreneurs who aspire to launch their own crypto exchange startups. This is called a white label exchange solution.
Most technological solution providers only charge a one-time license fee without any commission structures, and there is no recurring fee. Clients can host their exchange themselves, and they receive complete source code.
Going for a white label solution can help you save a lot of time, effort and money. Also, these solutions are tested and proven to work and allow all customizations. In addition, they usually have a robust trading engine, an integrated web3 wallet, and a payment gateway.
- Determine best security practices
Since the exchange platform will store its users' sensitive information, it is mandatory to properly secure the platform to prevent possible hacking attacks and data leaks.
The platform needs to have a secure architecture wherein the main components and encryption keys of exchange need to be hosted at different servers and interact through different channels.
To prevent unauthorized user logins, it is advisable to implement two-factor authentication. Also, users should receive notifications about any insecure login to their accounts with a specific location and IP address.
- Collaborate with a payment processor
Different payment processors have different fee structures that vary extensively. Therefore, in order to remain competitive, you need to get the lowest transaction rates possible. Some of the other differences between different payment gateways include settlement time and compliance with PCI DSS, which ensures best practices for cyber security. Therefore, you need to be sure that your payment processor is PCI compliant to ensure safety against cyber threats.
Sometimes some processors add hidden charges into their contracts, so be sure to go through and understand all details of the contract you’re signing.
- Onboarding process on the platform
Onboarding is essential for users to get familiar with different functionalities on the platform. For example, how can they use the platform, and where are different sections located for various other use cases.
The onboarding process on an exchange platform should not be complex as it directly affects the quality of user experience. The platform should be user-friendly and render an easy checkout process.
- Finalize basic features of the platform
Suppose you want to have a cryptocurrency exchange that is in demand. In that case, you need to make sure to add most or all of the basic features on the platform like notifications feature for users to not miss any important detail, chatbot support for assistance to the users in difficulty, bank integrations for exchanging fiat for cryptocurrencies, analytical tools, security settings, rating and feedback, crypto-wallet integrations, order book and history of transactions, user dashboard for all information about the recent operations, trading engine system, filters and configurations etc.
- Pick the more advanced features of the Exchange
For a great exchange platform, these features are important, like Arbitration, NFTs integration, creation of your own token, AML/KYC/KYT, training, and artificial intelligence-based system recommendations to help people correctly exchange currencies on the platform etc.
Arbitration is comparing the rates of different crypto tokens within an exchanger to exchange cheaper tokens for expensive ones to earn a profit. This feature is one of the most popular features and is liked by the users.
Developing a cryptocurrency exchange can be a cumbersome project which requires months of planning and a lot of effort and funds. Exhaustive research needs to be done before coming up with a concrete plan. You can also consider taking help from an agency for more expert advice and a fail-proof strategy.