One of the biggest beneficiaries of this parabolic climb has been cryptocurrency exchanges. Last month, Coinbase’s IPO had Wall Street salivating. Prior to its stock market debut, the company estimated first quarter 2021 revenue at $1.8 billion - up from just $190.6 million in the same period last year. Net income forecasts were similarly impressive, with estimates as high as $800 million compared to just $31.9 million in 2020.
It’s not just the Coinbases and Binances of the world that are profiting either. CoinDesk’s fourth quarter 2020 report found that the total market for “transparent” spot exchanges reached north of $2.4 trillion in monthly dollar volume last year, compared to just $1.2 trillion in 2019. Elsewhere, regional exchanges serving local markets have also soared. Asian exchanges, for example, averaged nearly $300 million in estimated daily volume in the second quarter of 2020, according to research by AlphaPoint. Estimated yearly revenue averaged roughly $12 million per year per marketplace.
All things considered, it’s a lucrative time to start a cryptocurrency exchange, brokerage or OTC desk. Yet despite the massive opportunity, many entrepreneurs have been unable to reap the harvest. Why? Because it’s exceptionally hard to build an exchange from scratch. To succeed, you must conquer a long list of challenges that includes cost, security, speed, scalability and technical protocols in addition to regulatory requirements, banking and customer service.
Dealing with these issues is expensive and stressful. So while the cryptocurrency market looks more and more like the next Gold Rush every day, the barriers to entry remain high.
The White Label solution
Full stack white label technology removes many of these barriers. In the same way Shopify enables online retailers to plug and play, white label cryptocurrency exchanges are all-in-one solutions that make it possible to launch a fully functioning trading platform in as little as weeks. This is revolutionary because it makes it feasible for entrepreneurs to enter the market without massive venture capital backing. Let’s take a closer look at exactly how.
Building an exchange from scratch can be prohibitively costly. The “build” model requires hiring and managing development teams, planning a roadmap with testing/QA, and designing and maintaining complex security-conscious hosting architecture - all expensive processes that can cost tens of millions of dollars. For entrepreneurs, this is a high-risk endeavor. White label software reduces this risk by acting as a tech provider. All the technology needed to build a thriving exchange can now be accessed starting from $60,000 to $120,000 a year. In addition to affordability, these prices offer predictability and transparency.
If cost wasn’t barrier enough, working with in-house or outsourced development teams can also be frustratingly slow. Consider the time it takes to interview candidates, recruit infrastructure managers, onboard hires and mediate disputes. In specific terms, it’s a six to 18-month process minimum - and that’s just for the beta product, which will likely fall short of market needs.
In contrast, white label technology is ready to deploy in just weeks. The software has already been developed and tested for use, eliminating technology risk and freeing up time to optimize the business plan and manage regulatory requirements. The additional bandwidth entrepreneurs enjoy through this route is invaluable.
When you’re handling millions - potentially billions - of your customers’ hard-earned dollars, security is priority number one. White label software removes this stressor with built-in cybersecurity that accounts for an exhaustive list of threats and vulnerabilities.
While not all white label providers have secured insurance, some do protect your assets from security theft. The best allow you to customize security based on your risk tolerance. Features include choosing a preferred custodian, IP whitelisting, two-factor authentication, audit trails and emails, and around-the-clock monitoring and alert functions.
For context, note that leading white label providers use the same security best practices and tools used by the world’s premiere banks. This gives entrepreneurs access to a proven library of security experience right off the bat. Building these features on your own is a massive project that requires 24/7 upkeep. In contrast, everything you need to win customer trust and avoid becoming the next Mt. Gox comes with your white label subscription. And it runs even while you sleep.
After security, the next biggest hurdle may be ensuring there’s inventory to trade from day one. Entrepreneurs new to the cryptocurrency space will likely find building liquidity partnerships challenging without existing connections.
White label solutions allow you to skip this step by providing instant access to thousands of trading pairs, as well as advanced trading engines for sophisticated order types and risk management tools. They’re already partnered with leading liquidity providers, market makers and OTC desks, and can provide a configurable order management system, matching engine, and order routing. These functions eliminate the need to build your own liquidity network and minimizes the capital investment required for a healthy order book.
With configurable trading pages and integrated admin dashboards, white label software lets you customize exactly how your exchange looks as well as which analytics you track. Built-in affiliate tools and referral systems unlock powerful marketing capabilities and loyalty programs for your biggest fans.
Compliance features can be customized too. Third-party KYC/AML integrations help you verify customer identity, reduce money laundering risks and prevent fraud. Banking integrations and secure payment processing solutions make turning fiat into crypto a seamless experience. And credit card and payment processing solution partners can extend the types of financial services provided.
Implementing these integrations on your own requires sifting through a sea of third-party providers and usually comes with a hefty monthly subscription fee. White label exchanges take the guesswork out of this process. With flexible APIs, your team can focus on adding differentiating features rather than developing the core.
So your exchange is successful. Customers are happy, business is booming and your brand was just featured on CNBC. Suddenly, your userbase doubles in two days. Are you prepared to scale every detail, from onboarding and security to escalating trading volumes and customer support?
White label exchange platforms ensure you don’t have to constantly think about the future. Their built-in scalability features were designed to grow with the userbase. Entrepreneurs using these services can aim for the moon with their marketing, because the underlying software is equipped to handle any volume increase.
The White Label advantage
The beauty of white label technology is that it allows everyone to access these industry-leading capabilities. Its built-in functions and 24/7 support features mean entrepreneurs no longer have to start from square one. Rather than waste valuable energy on start-up costs that drain both financial and mental resources, they can now leverage turnkey solutions to enter the cryptocurrency market faster, leaner and safer.
Exploring Use Cases
José Artur Ribeiro was CFO at Vodafone Brazil when something caught his eye. “Offer and demand of Bitcoin in the US and Brazil were not as efficient as they should’ve been in early 2017,” said Ribeiro. “The demand in Brazil was higher than the supply available, creating a major arbitrage opportunity averaging between 10-20% difference. There was clearly a large upside to be capitalized on.”
Shortly after, he left his job to start Coinext, a cryptocurrency exchange designed to bridge gaps in Brazil’s retail trade market. Here, Ribeiro’s go to market strategy was to move as quickly and lightly as possible. Realizing he didn’t have the resources to hire a development team and start from scratch, Ribeiro built Coinext on white label software - a decision that allowed the exchange to go live in just four months.
This proved invaluable. Thanks to its launch speed, Coinext was able to scale rapidly and take the Brazilian market by storm. Since inception, it has facilitated trade of over 3.3 billion reais in cumulative exchange volume - capturing nearly 10% of the Brazilian cryptocurrency market.
In the future, Coinext is looking to expand into asset tokenization, crypto lending and margin trading - all of which can be enabled through its current white label provider.
When cryptocurrency began gaining traction in 2017, Merbin Rangel and Sergio Yurman Moldauer saw how blockchain could revolutionize underserved regions like Lima, Peru, where they’re based. They envisioned a future where digitization would lower the cost of transactions, empowering entrepreneurs to create businesses that were previously unfeasible.
At the time, cryptocurrency marketplaces that met security and reliability standards were an unmet need in Latin America. Sensing an opportunity, Rangel and Moldauer launched Banexcoin, a cryptocurrency and blockchain asset exchange that fulfills PCI DSS compliance standards for security. The exchange is also registered with the SBS, which regulates Peru’s financial system.
To satisfy the strict requirements necessary for these certifications, Banexcoin leverages white label software, which protects their customers’ information with enhanced protocols and advanced layered architecture.
They’re also able to offer their traders a variety of attractive features, including real-time user verification, 24/7 technical support and commission-free cryptocurrency deposits. Most notably, they’re an active payment gateway for the Peruvian sol, allowing customers to initiate fast physical withdrawals in fiat.
Launched in 2018, Singapore-based Zipmex originally targeted the highly competitive Thai crypto market. They envisioned two advantages to this strategy. First, as institutional interest in cryptocurrencies ramped up in the region, they saw an opportunity to play a key role in shaping Thailand’s regulatory landscape. Second, they noticed that other Southeast Asian countries seemed to be watching how Thailand was handling the market. If they succeeded here, they knew they could gain influence in other countries in the region.
“We took a bet that the other Southeast Asian countries were looking towards Thailand to gauge how the industry reacted within their country before making moves of their own,” said Chief Product Officer Ken Tabuki. “So as we were involved in the Thai regulatory side, we thought that that would help us have conversations on the Indonesian and Singaporean side of things as well.”
To take advantage of the blossoming cryptocurrency market, Zipmex had to act fast. They were able to achieve this through white label software, which freed up resources so they could focus on optimizing client satisfaction. It also provided the security features necessary to obtain a Digital Assets Exchange License from Thailand’s SEC, making them one of just a few regulated exchanges in the country.
Within eight months of launch, Zipmex had facilitated over $125 million worth of trades and in 2019, they reached an $18 million market cap. They are now a leading cryptocurrency exchange in the Southeast Asian market.
The Common Thread
In each of these use cases, white label software enabled entrepreneurs to enter the market quickly. Because they didn’t need to rely on development teams to build from scratch, they had everything they needed to capture market share from day one.
More importantly, this model puts them in league with the world’s leading financial institutions. Outside of the industry giants, most global and regional banks and exchanges don’t run on their own technology, opting instead to partner with white label providers. Even for these organizations, the cost to build safe and competent infrastructure on their own is simply irrational when there are powerful plug and play solutions available.
Research firm Facts & Factors projects that the global cryptocurrency market will continue to grow at 30% CAGR until 2026. It’s obvious to anyone watching that there’s a tidal wave of opportunity here, and many will have the chance to build generational wealth.
But unless entrepreneurs and businesses expanding their offerings can access the necessary tools at economically feasible costs, they have no way to capitalize. White label software fills this need, supplying equipment to the miners of this generation’s Gold Rush. As the cryptocurrency market continues to balloon, this technology will empower entrepreneurs from all backgrounds and aspirations, giving them access to the playing field without bankrupting financial and mental resources.
Just as importantly, white label software is prepared for evolution. Blockchain is innovating at a blistering pace, and tokenized assets for digitized commodities like real estate, luxury goods and new asset classes are right around the corner. According to research firm MarketsandMarkets, the global tokenization market is forecasted to jump to $4.8 billion at a 19.5% CAGR by 2025.
These securities require new technology and security protocols distinct from those of standard cryptocurrency exchanges. That means existing exchanges must once again choose between buying white label software and building their own. Exchanges currently using white label software, however, won’t have to worry. The features necessary for trading tokenized assets already exist in their subscription.
This ability to effortlessly adapt to innovation is the final nail in the coffin in the “buy” versus “build” conversation. In addition to all the logistical, financial and security-related headaches white label software solve, its lightweight and dynamic technical architecture enables entrepreneurs to capture future markets without friction. Bottom line: “buy” is almost always the right choice.
Cryptocurrency has been a powerful driver of innovation and economic opportunity. Previously, only those with robust investments or big corporate backings could join the party. Thanks to white label software, however, crypto visionaries from all over the world are now operating strong, reliable marketplaces.