Crypto exchanges are the platforms that facilitate efficient and effortless trading with cryptocurrencies. They allow you to buy, sell, trade, and swap your crypto assets. There’s a high likelihood that crypto wouldn't be nearly as popular if these exchanges did not exist.
Not only do these exchanges provide an essential service in the crypto sphere, but they can also prove to be a lucrative business venture.
Here’s a six-step strategy we recommend if you’re interested in operating your own exchange:
Let’s take a closer look at what these steps mean and why they’re necessary for building a successful crypto exchange.
Research and Planning
Your initial research and planning are the base that’ll support the entire project. If this base isn’t solid enough, your whole business venture is at risk of collapsing.
With that in mind, here are the three most important considerations during this step:
Understanding the market and competition
At the time of writing, there are almost 500 different crypto exchanges operating around the world. Your first job is to research these exchanges and understand how they operate. Consider questions like: What are their strengths? What are their weak points? What unique product or service do they offer to their customers?
Doing systematic research like this will help you find holes in the market that you can later fill with your exchange.
Identifying target audience and user base
Once you have a good idea of what the rest of the market is like, it’s time to focus inward on your own exchange. This is the stage where you identify your potential audience and user base.
Think about what type of investors you want to attract to your service. Do you want to build an easy-to-use exchange for retail low-volume investors, or are you more interested in professional high-volume traders? Additionally, do you wish to target novice crypto traders or experts?
Answers to these and other similar questions will steer the direction of your project from the get-go.
Developing a business plan and strategy
Now that you have a target audience in mind, think of how you can cater to their needs. Not only that, but also consider factors like your company's goals, financial projections, marketing strategy, and risk management plan.
If you’re inexperienced in proper business planning, this would be a good time to hire a professional who can help you with these strategies.
Understand that you’re building a business in the financial sector, so there will be a lot of legal permits, licenses, and regulations to deal with.
Here’s a step-by-step guide on how to approach this process:
Different countries and jurisdictions will have different laws regarding crypto exchanges. So, choose the countries where you want to operate legally and understand their regulations.
Misunderstanding a country's regulatory policies can put your project in jeopardy for that jurisdiction. We’d recommend consulting legal agencies that specialize in the financial sector for those countries to avoid any issues.
Obtain licenses & permits
Unless you’re building a fully decentralized crypto exchange, you will need the right licenses and permits to operate legally. The exact permits you need will vary between countries, but some common ones include money transmitter and securities licenses. Be sure to complete this process thoroughly and obtain all the necessary paperwork before launching your exchange.
Comply with KYC regulations
KYC or Know Your Customer is a regulation that requires crypto exchanges to tie their user’s accounts with legal IDs. These laws are put in place to prevent financial crimes like money laundering and terror financing. While there are exchanges that don’t require KYC, complying with AML/KYC regulations is the best way to build a reputable exchange.
The exact document and information you’ll have to collect from your users might vary between countries, so seek professional legal help with this.
Technology and Infrastructure
Now that the legal requirements are sorted, you can actually begin building your exchange. But before that, you’ll need a competent development team that has previous experience in building crypto exchanges or blockchain-based platforms.
After you’ve hired a dev team, here’s how the process will continue:
Blockchain and programming languages selection
Which blockchain technology will your exchange support? One of the most popular options for this is the ERC-20 Ethereum network. Other than that, you can also choose blockchains like Stellar, EOS, and Ripple. Of course, this choice isn’t random and will depend on the goals and projected features of your exchange.
As for the programming language, we’d suggest leaving that decision to your development team. That said, one of the most common blockchain development languages is C++.
Development and implementation of the platform
Next, it’s time to begin the actual development process. Depending on the scope of your project and the size & experience of your team, this step can take anywhere between 6 months to one year.
Make sure to include essential crypto exchange features like optimized order books, useful trading charts, and a robust user account management system.
Implementing platform securityThe last — and arguably the most important — step of crypto exchange development is making it secure. You’ll have to protect both your exchange and your users from hackers and scammers. During this stage, we’ll also suggest hiring penetration testing experts to solidify your platform's security.
Partnerships and Collaborations
Even the largest exchanges in the world cannot operate all on their own. You will have to collaborate and partner up with other organizations, and here’s why:
Collaboration with banks and payment gateways
You’ll need a way for your customers to convert their fiat money into crypto and vice versa. To achieve this, you’ll have to partner with banks and payment providers to make the process as effortless for your users as possible.
For example, if you’re operating in the US, partnering up with Cash App can make deposits easier for a lot of your potential customers.
Integration of multiple cryptocurrencies
From our time in the crypto world, we know that traders are always on the hunt for the next big investment opportunity. So, you will have to collaborate with new crypto projects and integrate them into your exchange to attract your customers’ attention.
Having more cryptocurrencies on your platform will also increase trading volume which is a big step toward success.
Building a network of traders and investors
You’ll need some initial investors and traders to build liquidity on your platform. An effective method we’ve seen some new exchanges use is partnering up with communities of traders and market makers. You can offer some exclusive deals, such as free crypto, to entice these first traders.
Marketing and Promotion
By now, your crypto exchange should be complete and ready for launch. To ensure that you have a solid customer base right from the get-go, you’ll have to market and promote your exchange platform. Here’s how:
Developing a marketing strategy
Before you spend any money on adverts or promotions, create a concrete marketing strategy. Think about the type of users you want to attract and consider the impression you want to give them about your exchange.
Social media and online marketing
From what we’ve seen, social media is one of the most powerful marketing tools. In addition to using online marketing strategies like paid adverts on YouTube, create a social media platform. Make accounts on all the major social platforms and hire a social media manager to grow and interact with your online community.
Advertising on crypto and fintech platforms
Readers of crypto and fintech platforms are already interested in cryptocurrencies. So advertising on these platforms can be a great way of generating leads and reaching potential customers. You can also submit press releases on crypto news sites for a similar benefit.
Launch and Maintenance
The development process for exchange is complete and you have a potential audience, all that’s left for you to do now is launch the platform.
However, a crypto exchange is not a platform that you just launch and forget about. You will have to keep a constant eye on every function to confirm that it’s working properly. If you receive any complaints about hiccups or glitches, address them as quickly as you can.
You should also keep your users updated about upcoming features, expansions, and improvements. More importantly, don’t just make promises, but ensure you deliver on them. This will ensure that your existing user base is satisfied with the exchange’s current operations and future progress — leading to a higher customer retention rate.
Building a crypto exchange can be a long, arduous, but ultimately rewarding process.
You’ll have to gather info on your competitors, comply with regulations, and choose the right technology before you can even begin development. After the development process is complete, you’ll also need partnerships with financial institutions, and a sound marketing strategy for promotion. After the launch, constant monitoring and updates are essential for success.
Of course, the six-step approach mentioned above is only a brief overview and glosses over a lot of details. If you’re serious about creating and operating a crypto exchange, you can use these steps as a general guideline.
Make sure to do thorough research into the hardships and hurdles of creating a crypto exchange of your own. Once you understand the potential risks of this business venture, only then should you invest your hard-earned money on this project. Good luck!