With a few exceptions such as China and North Korea, almost all other countries seem to be welcoming digital assets with open arms. In fact, several countries such as Malta, Lithuania, and Japan have laid down regulatory frameworks, allowing entrepreneurs to run a licensed white-label crypto exchange business. With cryptocurrency adoption nearly doubling in 2018 (from 18 million users in 2017 to 35 million users in 2018), it is fast becoming a lucrative business.
However, setting up an exchange goes well beyond merely developing cryptocurrency trading software. You need to consider a variety of factors ranging from legal framework to marketing strategy when setting up an exchange. Here are eight tips that will help you launch your own crypto exchange software.
1. Decide the Type of Exchange You Want to Launch
You can either set up a Centralized Exchange (CEX), a decentralized Exchange (DEX) or a Hybrid Exchange (HEX). Setting up a CEX is an obvious choice as centralized exchanges are extremely popular among traders. It is also cheaper to set up a CEX compared to a DEX and provides multiple revenue channels via value-added services. However, you will need to comply with KYC and AML regulations, and get a license from the respective government authority.
Setting up a DEX though expensive, requires no regulations. So, you can save big on legal fees. However, DEXs tend to have low volumes and offer only basic functionalities. As a result, your revenue options are quite limited.
Your third choice is a hybrid exchange. Although it can bring the best of both, CEX and DEX, the technology is still young. In short, you will be spending considerable time, effort, and money in the development phase. You will also have limited support from the development community.
2. Identify the Regulations and Compliance Requirements
Depending on the type of exchange, your target audience, and the scope of your services, you will need to identify the required legal regulations. Most countries don’t consider cryptocurrencies as legal tender. However, their laws for setting up crypto exchanges may vary.
For example, Malta has laid down special regulations for exchanges under the Virtual Financial Assets Act (VFA) with the Malta Digital Innovation Authority (MDIA) presiding over the crypto activities in the country. Similarly, Lithuania, Japan, Australia, Estonia, and Gibraltar, among others also have progressive crypto laws.
On the other hand, countries like India still haven’t set up clear-cut regulations for crypto exchanges, or are in the development stage, while Singapore allows setting up unregulated or self-regulated exchanges. However, a handful of nations including China and North Korea have completely banned crypto coins and exchanges.
3. Find a Banking or Payment Processing Partner
This step is essential if you are going to convert fiat into crypto and vice versa. You need to consider the country your exchange is operating out of, AML/KYC rules, processing charges, and transaction time.
Working with a bank providing instant online or wire transfers will help attract customers. You can also provide value-added services such as debit and credit cards with the help of the bank or payment gateway provider.
For example, Bitwala offers a MasterCard Debit Card that traders can use to shop online or offline. It is directly linked to your Bitwala crypto trading account or wallet. The bottom line is, users are going to need a tool that allows them to add and withdraw funds as they please.
4. Hire a White-Label Exchange Software Developer
The cryptocurrency trading software is the bedrock of your exchange. Using a white-label exchange software developer to build your exchange platform will save you time, effort, and money. You can find several different companies specializing in customized turnkey exchange development solutions.
Usually, a while-label developer will provide you with a trade engine, front-end user interface, cryptocurrency wallets, back-end user interface, and customer support. It is also essential to own the full source code as several regulators request to inspect it while registering your exchange. Plus, it allows you to customize the exchange as and when needed. Make sure to carry out your own research to find an experienced, reputed, and affordable solution provider.