Introduction
With the growing adoption of digital assets, it is clear that those who control the marketplaces that enable their trade can reap substantial benefits and position themselves as the main beneficiaries of the technology. Establishing a digital asset exchange, however, is not an effortless task.
In general, there are two ways one may set up a digital asset exchange. The first involves establishing experienced development, management, and operations teams, and then taking minimum a year to *hopefully* build a robust technological solution that is secure and scales efficiently. The second option entails collaborating with a white-label provider that can deliver not only the needed technology, but every other major service that is required for the endeavour to be successful [1].
White label exchanges
We previously introduced the concept of white-label and its use in the digital asset exchange industry. We are firm advocates of the use of robust, reliable white-label technology that can get an exchange up and running quickly and at a fraction of the cost of building one in house [2].
Creating an exchange from scratch is a complex (and almost always unforgiving) process with high requirements for security, performance, and flexibility. Having the option of outsourcing the project to specialized teams can help mitigate risk and ultimately define the future and success of it.
Benefits of white-label exchange technology
Some of the main benefits that can be found when utilizing white-label exchange technology include:
- Cost and time efficiency
- Tested technology
- Cloud-based systems that don’t require teams for upgrading
- Personalized requirements
- No need for technical expertise
- Multiple device access.
Furthermore, it can prevent huge complications in the development phases and is a sure way to know your exchange is secure. But despite the mentioned benefits, we’d like to describe why we believe that choosing a white-label provider at random (or worse, considering only its cost) can often be as harmful and error-prone as making your own exchange.
Partnering with a third-party provider resembles trusting the architect to set the correct foundations for a house. Even if you are the best at decorating (front end user interface in our analogy) and are the best at marketing, you rely on the performance of your underlying base technology. A technology provider that has either inadequate security, low transaction speed, no liquidity, no KYC/AML modules, no robust support, or a combination of these, will inevitably cause structural problems – problems that the digital asset community doesn’t usually forgive.
White label exchange problem cases
The ultimate question is “how to choose the right technology partner?”
Sometimes the cheaper option ends up being the most expensive.
While white-label exchange fees for setting up the exchange can range from values as low as US$5,000 to US$1,000,000 in the other extreme, a midpoint can be observed at approximately US$150,000. Although at first it might give the impression of being expensive, the truth is that a do-it-yourself scheme easily surpasses that number. In fact, bitHolla estimated that the building costs alone for this type of structure can range between US$500,000 to US$ 900,000, a number that does not factor in other business aspects such as legal, marketing, finance, compliance or HR. Atop this number, the time it takes to get the exchange up and running must be taken into account. Over a year is a realistic time frame for a do-it-yourself functioning exchange; a period that is in itself an opportunity cost, especially in a fast-moving industry like the digital assets one [3].
But because an ample offer of white-label exchanges exists, one might be tempted to select the cheaper ones. Why would anyone invest US$150,000 with an existing US$10,000 alternative? Unsurprisingly, there are many reasons why. Low-range white-label exchanges can present a number of problems mainly categorized in security, liquidity, scalability, and compliance. Centralized exchanges are hacked almost everyday, they suffer outages due to poor scalability, are slow for tick-to-trade and processing transactions, and may very well not be compliant with regulatory requirements. Choosing to collaborate with a technology provider solely because of its price will inevitably cost you dearly.
SCALABLE Offering
At Scalable we take pride in providing an industry flagship range of products and services. Customizable, compliant and secure exchanges, with unrivalled matching engine and liquidity, sets us (and our clients) apart. The knowledge and quality of our team serves as a perfect example of quality-over-quantity; equipped to be flexible and help every client of ours thrive. We can provide a range of options for your exchange depending on your size and budget, without compromising on the quality of the services given. This ensures that as your exchange and its customer base grows, the technology can scale accordingly throughout.
Make sure to subscribe as we develop each key topic mentioned here in articles to help you understand the intricacies of digital asset exchanges and the blockchain industry as a whole.
Interested in building or upgrading your exchange? Schedule a demo here today.
Resources
[1] “How to Set Up a Digital Asset Exchange.” Resources, Scalable Solutions, 6 Mar. 2020, scalablesolutions.io/news/how-to-set-up-a-digital-asset-exchange/.
[2] “What Is a White Label Exchange? .” Resources, Scalable Solutions, 7 Jan. 2021, scalablesolutions.io/news/what-is-a-white-label-exchange/.
[3] “The Definitive Guide To White-Label Crypto Exchange Solutions.” Medium, BitHolla, 7 Sept. 2020, medium.com/bitholla/the-definitive-guide-to-white-label-crypto-exchange-solutions-e0e55b319c76.
Sources
Tentser, Ishay. How to Choose the Right White Label Platform for Your CryptoExchange. Medium, 7 June 2018, medium.com/@ishay_13213/how-to-choose-the-right-white-label-platform-for-your-cryptoexchange-6f6ac7d9a41.
“The Pros And Cons Of Using White-Label Crypto Exchange Software.” On Your Desks, 14 Dec. 2020, onyourdesks.com/pros-and-cons-white-label-crypto-exchange-software/.
