Text | Qin Xiaofeng Editor | Mandy Wang Mengdie
Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
In 2019, exchanges have made many attempts, ranging from IEO (Initial Exchange Offering) to model coins, from perpetual contracts to lending and wealth management, and so on.
However, very few have really succeeded in breaking through, and some business methods are extremely controversial and unsustainable, and should not be emulated by latecomers.
On the whole, the “three pillars” pattern of Binance, OKEx, and Huobi has not been broken in the past year, and small exchanges still face survival problems, and the “Matthew Effect” is obvious.
In 2020, where is the next battlefield for exchanges? Where is the right direction to break through the industry?
At the beginning of the new year, Odaily launched the annual planning report "Hello 2020" looking forward to the future series. This issue is about the exchange. We have summarized the development trend and sorted out the opportunities, hoping to provide some references for practitioners.
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Looking back on 2019: two major battlefields and one major direction
This year, the exchange continued to introduce new models and gameplay, but after a new gameplay came out, peers imitated it, and the homogenization was serious. Exchanges without core competitiveness gradually lose their reputation and users, and are eventually eliminated by the market.
This year, the two main vertical battlegrounds of the exchanges are IEO and futures contracts, and the horizontal development direction is to eat more traffic and become a comprehensive one-stop trading platform.
1. In the first half, IEO is popular
Looking back at IEO, its original intention is to create a "multi-party win-win" situation: star projects bring traffic to the trading platform, and exchanges provide brand endorsement for project financing; exchanges screen projects to protect investors.
Judging from its practice, the first IEO project BTT launched by Binance at the beginning of the year opened ten times, and the wealth creation effect also brought extremely high attention and traffic to the exchange.
IEO became popular, which naturally attracted a large number of exchanges to follow suit. However, the quality of projects varies greatly, causing heavy losses to investors. Since the IEO project is more deeply bound to the exchange brand, it also causes serious damage to the exchange's reputation.
In April last year, after the launch of the first IEO project CNNS launched by the Gate Exchange, it opened high and went low, and was directly cut in half the next day, triggering a storm of investor rights protection.
"The IEO model is still broken by some exchanges. They don't understand the logic behind it at all. They just think that this model is very popular and copy it. They just pull a project and don't do the review. The project colluded to commit fraud. In the end, it not only violated the original intention of protecting investors, but also damaged the brand of the exchange.” Binance founder and CEO Zhao Changpeng said.
By the middle of the year, the popularity of IEO has cooled and gradually forgotten. Even Binance, the pioneer, has gradually slowed down the frequency of launching IEOs, from once a month to every two to three months. OKEx has also reduced the frequency, and more exchanges have completely abandoned this model.
Evaluating IEOs today, most exchange respondents consider them to have been “successful.” Stimulated by IEO, each platform currency has risen to varying degrees. Among them, the platform currency BNB rose by more than 6 times this year, far exceeding the highest increase of OKB and HT.
From the perspective of investors, the return on investment of IEO projects can exceed 1000%; even now, the combined return rate of all IEO projects on Binance can still reach more than 60%.
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(IEO yield, source: CryptoRank)
However, in this IEO battle, the outstanding protagonists are still the leading trading platforms. More small exchanges are not even counted as supporting roles, and are completely reduced to cannon fodder.
2. In the second half, the futures contract battle
In 2019, another focus for exchanges is the contract market.
The centralized rise of contract exchanges can be traced back to the fourth quarter of 2018. In October of that year alone, dozens of contract exchanges were established, and 2019 ushered in explosive growth.
According to Feixiaohao data, seven of the top ten exchanges by trading volume have opened futures contract business, which shows the charm of contracts.
"First, for exchanges, the income of any relatively healthy exchange mainly comes from transaction fees. Since the overall market is still relatively cold in 2019 and the popularity of user participation has decreased, the exchange will take the initiative to find a way out. Second, the launch of the contract is also to meet the needs of users. In a bear market environment, the contract can set a leverage multiple, which can be short and long, which is more profitable than the spot." KuCoin co-founder Johnny Lyu explained.
The prosperity of the contract market has naturally attracted Huobi and Binance, and the two are competing to enter the game. However, there is also friction among the three major exchanges, and the root cause behind it is the competition for existing users.
On August 13 last year, Huobi official Weibo released a performance poster of "Huobi contract trading volume + depth now ranks first in the world", which was counterattacked by its old rival OKEx. First, a few hours after the poster was released, OKEx CEO Jay Hao satirized Huobi's "early liquidation" on his personal Weibo; the next day OKEx issued an official announcement, stating that "compensation for all users who liquidated their positions earlier in friends than in OKEx loss".
In addition, the contract market in 2019 is also gradually improving.
On the one hand, on the basis of the original delivery contract, a perpetual contract was born. In terms of design mechanism, the biggest difference is that the perpetual contract has no delivery date, and the contract will never expire for settlement. As long as the contract is not liquidated, users can hold it forever.
On the other hand, on the basis of the coin-based margin mechanism, the USDT (stable currency) margin was born. Compared with the former, the latter is more convenient for users to deliver and calculate prices, and improves the trading experience.
However, at present, the contract products of the new and old trading platforms are relatively similar, and it is difficult to show their characteristics. Some trading platforms have started to focus on some selling points, such as trading engines, discounted procedures, documentary, etc. As a result, a number of contract trading platforms have sprung up: such as Bybit, Hopex, AAX, BEX, etc.
3. General direction: one-stop comprehensive trading platform
Generally speaking, in 2019, exchanges tend to be homogeneous, and more exchanges are developing towards comprehensive trading platforms, integrating OTC (over-the-counter trading), spot, leverage, futures contracts, and lending.
For this change, many respondents are also more positive and optimistic. In their view, the comprehensive platform meets the diverse trading needs of users, and also retains existing users for the platform.
"From a business point of view, of course, the more comprehensive the better, the reason is that gathering everything on one platform can maximize traffic and profits, which is a very good thing for the platform itself and users." BitMax Founder and CEO Cao Jing said, "But from the perspective of compliance, at least from the perspective of traditional finance, the roles of exchanges and brokerages should be separated. This is not for commercial considerations, but for the protection of investors. and compliance considerations."
But to become a comprehensive platform, it will not happen overnight. OKEx CEO Jay Hao reminded: "The development of a comprehensive trading platform requires a strong technical background to support it. Currently, there are not many platforms that have mastered the business technology of these products. It is easy to launch various encrypted derivatives. Products are likely to cause user losses, which in turn damage the brand and reputation of the platform.
Although a comprehensive platform has many advantages, for an exchange, it should also depend on its own strength.
"A single trading platform and a comprehensive trading platform are like specialized hospitals and general hospitals. The direction of development depends on the platform's positioning and target audience." Johnny Lyu explained.
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2020 has arrived, where are the new opportunities for exchanges?
After experiencing "trading mining" in 2018, "IEO" and "futures contracts" in 2019, the question of where the exchange will go next has been lingering in the minds of all crypto investors.
In the eyes of some trading platform leaders, the existing exchange business is already very complete, and it is difficult to introduce new ones. It is only necessary to improve existing products.
"Now the exchange has entered a relatively mature stage, and the product categories tend to be richer. The future development direction is to maximize a single product." Cao Jing said, "Segmentize users, and fully understand the specific needs of certain users. Satisfied, such an exchange will have traffic.”
However, after writing dozens of in-depth articles on exchanges in the past year, the author has discovered some trends, which may become the main battlefield for the next round of exchange competition.
From a horizontal perspective, exchange futures contracts will continue to be the main battlefield, among which altcoin contracts will usher in a new round of explosion; in addition, options business may also become a killer.
From a vertical perspective, exchange public chains and mining pools will become new trends, empowering platform coins.
1. Horizontal business
Altcoin Contract
In the business of the exchange, the futures contract can really go through the bull and the bear. No matter whether the market is going up or down, contracts can be popular, and contracts will still be the main battlefield for exchanges in 2020.
However, as mentioned above, the current futures contracts, including the three major exchanges, are seriously homogenized.
From the perspective of types, each futures contract is the mainstream currency with the top market value such as BTC, ETH, and BCH; from the perspective of product design, it has both delivery contracts and perpetual contracts, currency standard and USDT standard margin models.
However, there are very few altcoin contracts currently on the market. The whole 2019 has been outstanding, only FTX and BBX.
Although the total market capitalization of other altcoins is less than 20% compared to mainstream currencies, the demand for trading altcoin contracts has always been strong, especially when new coins are launched or extreme market conditions occur (altcoin pull).
In October 2018, the FCoin Japan version (FCoinJP) was launched, and many people were bearish on its token FJ. BBX took advantage of the trend and launched the FJ / USDT perpetual contract, taking advantage of the momentum to gain thousands of users, and the contract was also offline a month later. In addition to FJ, BBX has also been listed on GTC, HT, Grin and other popular token perpetual contracts.
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(BBX launches FJ)
Although the market is vast, it is difficult for mainstream exchanges to directly launch this business. An important reason is that altcoin contracts are more volatile and users bear greater risks. This also makes mainstream trading platforms such as Binance and OKEx rather difficult. concern.
However, this does not mean that these giants do not want to share this cake. In December last year, Binance announced its investment in the altcoin contract trading platform FTX, officially entering this segment.
In fact, OKEx has already completed its layout long before Binance. Odaily exclusively learned that OKEx had acquired BBX as early as the first half of last year, but kept it secret.
However, the altcoin contract trading platform is not without barriers. In addition to building a high-performance matching engine technically, what is more important is how to increase the depth of transactions.
options
In fact, in addition to BBX and FTX, other small trading platforms have also opened altcoin contracts, but the depth is poor. Before the launch of Nervos (CKB) last year, GJ Exchange launched CKB futures, but most of the time it was in a state of zero trading volume.
optionsIf 2019 is the "year of contracts", then Odaily boldly predicts that 2020 may become the "year of options".》
The so-called option is a right that can be exercised at a certain time in the future. After the option buyer pays a certain amount of option premium to the seller, he can obtain this right: buy or sell at a certain price in a certain time in the future A certain amount of underlying assets, this is option trading. recommended reading
""Options are futures that will not liquidate", is this true?
Options can be seen as a supplement to futures, enriching the types of transactions.
"The birth of option products is inevitable, just as spot users will gradually transfer to contracts, and some contract users will also begin to transfer to options." Johnny Lyu explained.
This emerging business has also attracted the attention of many exchanges.
In September 2019, the encrypted derivatives platform JEX launched option trading; on December 9, Bakkt launched bitcoin option trading, with a trading volume of more than 200 BTC on the first day; on January 9 this year, OKEx launched option trading; on January 11 , FTX launched options trading; Chicago Mercantile Exchange (CME) also launched Bitcoin options on January 13.
For options trading, OKEx believes that the threshold is relatively high, and it is difficult for small trading platforms to operate.
KuCoin said that it will pay close attention to the popularity of options and does not rule out the possibility of going online. "Whether options can develop depends on the needs of users and the saturation of the market. At present, it is uncertain whether the current point of time is suitable for the development of option products. We will also pay attention to the popularity of users for this type of product in a timely manner."
Odaily found that some platforms have also launched variant versions of options. For example, BitMax has launched volatility card products called "Turtle Card" and "Rabbit Card", which are essentially similar to long and short volatility in options trading.
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(option variant)
However, for options trading to really take off, more user education needs to be invested.
"Because option trading is more complicated than delivery contract trading, when we conduct delivery contract trading, we only consider the single dimension of future price, while in option trading, we should not only consider future prices, but also market volatility, uncertainties, etc. There are multiple dimensions such as risk return rate and time value loss.” Jay Hao explained.
Although short-term options are difficult to become the main battlefield, with the passage of time and the entry of institutional users, option trading may usher in a big explosion.
2. Vertical business
Exchange mining pool
In addition to deepening the professional trading sector, the exchange is also further exploring the value of traffic.
In the past two years, many trading platforms including Huobi, OKEx, and Kucoin have entered the mining industry and started mining pool business.
Recently, Odaily exclusively learned that Binance may launch its own mining pool in 2020.
"The mining pool business is the best foothold for the exchange to open up the blockchain industry chain. In the future, the output (coins) of the mining pool can directly lead to the exchange (trading), further consolidating the core of the exchange in the blockchain industry. Status.” OKEx CEO Jay Hao explained.
The exchange has unique conditions to develop mining pool business. On the one hand, the exchange can reduce or exempt handling fees to subsidize users in the early stage to retain existing users; on the other hand, the exchange system shares an account to facilitate user transactions, so it is easier to stand out in the POS mining pool.
Currently, OK Mining Pool ranks first among EOS nodes, and ranks fifth among Bitcoin mining pools; Huobi Mining Pool ranks among the top five among multiple POS (Proof of Stake) project nodes such as EOS and ATOM, and has already Successfully squeezed into the top six bitcoin mining pools.
In 2020, ETH will be converted into POS, and this market will continue to expand. At that time, the exchange mining pool may become the core competitiveness of the exchange.
"My judgment is: in the future, the leading exchange mining pool will lead other mining pools." Changpeng Zhao expressed optimism about the future of exchange mining pools.
However, in the development of exchange mining pools, there is also a key issue: whether to issue coins or not.
At present, Huobi Mining Pool has issued HPT, and the highest increase in 2019 exceeded 600%, and the comprehensive income of the year also reached 85%. In addition, Kucoin's Pool-X mining pool has also issued its own token POL, which has not yet been launched for trading.
In this regard, Changpeng Zhao believes that exchange mining pools should not issue coins, but should serve the entire exchange ecosystem, especially empowering platform coins.
"If the mining pool of the exchange wants to issue coins, it must first consider its own business volume. It is logically reasonable for the mining pool to issue coins as user incentives. However, does the coin issued by the mining pool have sufficient liquidity and use? This is a big problem. If the business volume of the mining pool is not large, the pressure to maintain the currency price will be great.
Secondly, I think there is no need for exchange mining pools to issue coins. It is best for an ecosystem to share one coin. Let's take the problem to the extreme. Suppose the exchange has 100 sub-businesses. Is it better to issue 100 coins or share one coin? I think it is definitely better to have only one coin. Because the circulation of this currency will be very good, the number of users will be more, and the network effect will double. The value of this one coin far exceeds the value of 100 coins. Issuing a new coin, although it sounds like there are many new ways to play, in fact, the total value of the ecosystem is that big. "Changpeng Zhao explained.
Exchange public chain
Hundreds of public chains were born in 2018, which is called "the first year of public chains". By 2019, more than 80% of the public chains have died, and the saying "the public chain is dead" has also spread.
In fact, the three major exchanges have already developed their own public chains. Among them, Huobi took the lead, announcing research and development news as early as June 2018, and both Binance and OKEx revealed their own trends at the end of last year.
The public chain of the exchange may sound unreliable, but it is actually promising.
First, the exchange public chain can use the platform currency as a pass, which expands the usage scenarios of the platform currency, empowers the platform currency, and expands the value of the entire ecosystem.
Second, at a time when high-quality projects are decreasing day by day, exchanges can support projects to be developed on their own public chains, which not only improves the usability of public chains, but also promotes the application of public chains.
For example, in September last year, Huobi issued a document stating that it will provide pensions to more than 15.99 million people in Argentina through the public chain.
Third, the exchange can develop DEX (decentralized exchange) based on its own public chain. Although DEX is currently inferior to centralized exchanges in terms of trading experience, as time goes by, DEX may usher in a new spring.
"When the wallet management model, backup model, and security model evolve to a certain level, everyone will still prefer decentralized exchanges, so DEX is a long-term industry layout for us." Zhao Changpeng said.
Fourth, projects on the exchange's public chain are more likely to be favored by the exchange.
It is precisely because of the above reasons that exchanges are rushing towards public chains. Odaily exclusively learned that Kucoin will also enter the public chain.
"KuCoin will definitely be a public chain in the future." KuCoin co-founder Johnny Lyu replied affirmatively.
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Lifeline: Security and Regulation
In the process of development, the exchange has two lifelines that must be firmly grasped: one is security, and the other is supervision.
Safety is the first to bear the brunt, and the alarm bells must be ringing.
Going back 6 years, the shadow of 790,000 BTC stolen from Mt Gox has been hanging over the currency circle. Even with the increasing awareness of security, incidents of theft are still common. Odaily has reported more well-known theft incidents in 2019:
In March, DragonEx in Singapore was hacked, and the total amount of damaged assets exceeded RMB 40 million;
In March, BiKi was also attacked, and the amount of damage is unknown;
In May, Binance was hacked and lost 7,000 BTC (approximately $41 million);
In November, 342,000 ETH, or about 58 billion won or 350 million yuan, was stolen from South Korea's Upbit exchange...
In addition, several coin loss incidents broke out in 2019, mainly due to the death/runaway of the founder.
The above-mentioned attacks are just the tip of the iceberg of hacker attacks, and they have not stopped attacking.
With the popularity of cryptocurrencies, exchanges have increasingly become "fat meat" in the eyes of hackers. Under repeated attacks, no matter the size of the exchange, it is possible to be breached.
For exchanges, the only thing they can do is to continuously increase security investment and strengthen security measures. Of course, this requirement seems a bit high for some "fast food" exchanges.
(Odaily Note: "Fast food" exchanges, that is, instant exchanges that only rely on purchasing third-party trading systems, generally have poor security protection.)
In addition to improving security capabilities, all practitioners must keep in mind that they must strictly abide by the regulatory regulations of various countries and actively embrace policies.
Since October, supervisory agencies including the Shanghai Headquarters of the Central Bank and the Mutual Finance Office of Shenzhen Stock Exchange have successively issued risk warnings on preventing illegal activities of "virtual currency". On December 25, Qiu Yitong, director of the Guangzhou Financial Bureau, stated that all virtual currency platforms in Guangzhou have normally withdrawn from the market.
In addition, Alipay and WeChat crack down on virtual currency exchange from the payment side, which also reduces the living space of exchanges and further promotes the collapse of exchanges.
In the fourth quarter alone, more than 30 trading platforms encountered difficulty in withdrawing coins, went bankrupt, or simply ran away.
"Government regulatory policies will be clearer, which will have a greater impact on some localized exchanges. Although the attitudes of different countries are not yet clear, overall it should be more positive. Because countries are now competing, how to use the block Most countries are working very hard to attract blockchain start-ups, including trading platforms, which are relatively favorable.” Zhao Changpeng explained.
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"In 2020, the supervision of various countries will be an opportunity for the exchange to reshuffle again. When the supervision of various countries is opened, and when the stock funds from the traditional financial market are 100 times or even 1,000 times higher, the digital currency exchange will usher in a real opportunity. arena." Cao Jing said.》
"IEO, which used to be ten times easier, does anyone still participate now?
"Futures opened and exploded again? Learn more about perpetual contracts》
"Running, Retiring or Going to Sea? This question for the exchange is too difficult"
"Increased by 600%, why does the mining pool currency outperform Bitcoin? "
