Cryptocurrency Exchange Development

What a crypto exchange is

A crypto exchange is a trading platform where various cryptocurrencies can be sold, purchased, or exchanged. Similar to Forex, a crypto exchange brings together buyers and sellers of a currency (in this case, cryptographic), ensuring the reliability of deals. As with any exchange, it works on a trading engine, with the accuracy and speed of operations depending on the optimisation of the code. The engine verifies placed orders for asset backing, maintains records of orders in the database, and prepares data for display in a web/mobile app or trading terminal.

The first crypto exchanges were centralized and only allowed cryptocurrencies to be traded. As the market developed, the following classification emerged:

1. Bitcoin exchanges or altcoin exchanges, where only cryptocurrencies are traded, mainly in pairs with bitcoin and popular altcoins.
2. Cryptocurrency exchanges with fiat support, where cryptocurrencies are traded both in pairs with themselves and with fiat currencies.
3. Cryptocurrency derivative exchanges, where users trade contracts on the future prices of cryptocurrencies by placing orders for a short or long position.
4. Cryptocurrency exchanges with margin trading that provide leverage.
5. Centralized exchanges (CEXs) of registered companies that set the rules for trading, usually operate under a licence, and are subject to regulatory authorities.
6. Decentralized exchanges (DEXs) that create markets algorithmically and control them via a protocol, operate upon the basis of smart contracts and an automated market maker, and aren’t regulated by anyone.

Many crypto exchanges have characteristics of several types at a time, and large CEXs often launch a subsidiary DEX.

Popular cryptocurrency exchanges

There are over 650 cryptocurrency exchanges operating on the market, verified and listed on Coinmarketcap. Each of them tries to provide users with special conditions.

When creating a cryptocurrency exchange, keep in mind that traders pay attention to the following characteristics:

• Range of listed coins and tokens, available currency pairs
• Commission for trading, margin, deposit, withdrawal
• Methods of depositing and withdrawing funds
• Liquidity, daily trading volume
• Protection of user accounts and exchange wallets.

Spot centralized exchanges are the most popular. Amongst them, the top 3 are Binance, Coinbase, Kraken, according to the same Coinmarketcap.

Binance

Binance was launched in Hong Kong in 2017 and moved to Malta in 2018. In just a couple of years, it has grown from an ordinary exchange to an entire ecosystem where 12 projects are operating today. Binance offers 8 services for regular trading, 7 for derivative trading, 10 for earning and investing.

Specifics of Binance:

• Centralized, registered with AMF (France), FIU (Lithuania), FSA (Sweden), OAM (Italy), the Bank of Spain.
• Native coin BNB and stablecoin Binance USD (BUSD), bringing benefits to holders.
• 389 available cryptocurrencies.
• 11 fiat currencies: AUD, BRL, EUR, GBP, NGN, PLN, RON, RUB, TRY, UAH, ZAR.
• 1661 trading pairs.
• Support for derivatives and margin trading.

www.binance.com

Coinbase

The company Coinbase was established in California, USA in 2012. The initial version of its exchange was called GDAX, while the Coinbase Pro version was launched in 2018. Coinbase offers 13 services to private users, 9 services to institutional investors, 10 tools to developers.

Specifics of Coinbase:

• Centralized, registered with FinCEN (US) and FCA (UK).
• Native stablecoin USD Coin (USDC).
• 246 available cryptocurrencies.
• 3 fiat currencies: EUR, GBP, USD.
• 527 trading pairs.
• Support for derivatives.

exchange.coinbase.com

Kraken

The company Payward was established in California, USA in 2011. It launched an exchange named Kraken in 2013. Kraken periodically absorbs other exchanges and acquires services, for example: the exchanges Cavirtex, CleverCoin, Coinsetter, Crypto Facilities; the services Glidera and Cryptowatch.

Specifics of Kraken:

• Centralized, registered with FinCEN (US), FINTRAC (Canada), FCA (UK).
• 229 available cryptocurrencies.
• 7 fiat currencies: AUD, CAD, CHF, EUR, GBP, JPY, USD.
• 729 trading pairs.
• Support for derivatives and margin trading.

www.kraken.com

Revenue of popular exchanges

Cryptocurrency exchanges earn on commissions for trading and withdrawing crypto/fiat from the account. Trades are taxed at a minimum if a user pays for a fee with native exchange tokens, as well as trades in very large volumes monthly. Therefore, examples of fees in the table below start at 0%.

As a rule, exchanges don’t charge a deposit fee. The fee for withdrawing cryptocurrencies almost completely goes to pay miners or stakers of the network via which the transaction is carried out. Considering that each network has its own tariffs, we only indicated the fees for withdrawal of BTC and ETH for reference.

The last column, with volumes in July 2023, will help you calculate the approximate daily revenue from spot trading only. Take the average of fees for makers and takers and multiply by volume to get the average revenue of a popular exchange.

What a P2P platform is

A P2P platform is a service that allows users to sell and buy cryptocurrency directly. The buyer and seller interact with each other without the mediation of a third party. And the P2P platform only helps to select ads, pre-checks and evaluates their creators, as well as provides escrow accounts for cryptocurrencies.

CEXs usually have strict rules and requirements for users, including passing identity verification. Unlike them, P2P platforms are more loyal to users. To find the best offer in a few seconds, they only need to fill in several fields of the search form.

How P2P platforms operate

P2P platforms resemble crypto exchanges only in that they also match sellers with buyers, facilitating trading for those who need to quickly sell or buy cryptocurrencies. Otherwise, they operate very differently from both CEXs and DEXs:

• Deals are made by users themselves, rather than via execution of orders.
• The best offer is selected by the user based upon the specified cryptocurrency, amount, and payment terms.
• There are many more payment methods: bank cards and accounts, transfers via SWIFT and SEPA, electronic payment systems.
• There are no commissions for deals because users made them directly.
• Sellers’ cryptocurrencies are stored in escrow accounts, which protects both them and buyers from violating the terms of the deal.
• Most platforms have a user rating system to improve the quality and security of deals.
• The seller and the buyer can discuss deals in a chat window.
• If the parties have problems like a dispute, they can file an appeal through their personal account.

When creating a P2P platform, keep in mind that users pay attention to the following factors:

• Interface, which should be intuitive and user-friendly so that users can quickly create or find ads and make deals easily
• Security, which should include two-factor authentication, encryption, confirmation of withdrawal using a code in SMS and email
• Reputation, which should be impeccable, because today sellers and buyers carefully check crypto services due to frequent scams
• Customer support, which should instantly process appeals and solve problems.

Users additionally pay attention to available payment methods, the number of ads (liquidity), and the absence of scammers on the platform.

Do you need a P2P platform? Polygant develops them from scratch and also implements a P2P service on existing trading platforms. Contact us on Telegram, and after a detailed discussion, we will get started on your project right away!

What an instant exchange service is

A crypto instant exchange service is a website without a trading engine and an order book. It itself acts as the second party in trading, that is, it sells and buys cryptocurrency. In this way, it more resembles an offline currency exchange point.

Unlike crypto exchanges, where prices depend on the balance of supply and demand, on an instant exchange service, the owner sets the exchange rates themselves. On the one hand, this is an advantage of instant exchange services because they don’t allow users to practise ‘pump’ and ‘dump’ schemes. On the other hand, this is their disadvantage because the prices on crypto exchanges are more favourable.

It’s more profitable to create an instant exchange service than a crypto exchange: development costs half as much and pricing depends on the owner, not traders. While administrators often look at market prices on exchanges, many buy and sell at significantly different exchange rates. And their customers can’t choose an acceptable selling or buying price for themselves, or specify their own, unlike orders on exchanges.

When creating an instant exchange service, keep in mind that users pay attention to the following characteristics:

• Opening hours
• Efficiency of customer support
• Variety of currency pairs with popular coins and tokens
• Slight difference with market prices
• Low commissions
• User interface convenience
• Smooth operation.

How to create a crypto exchange

There are two practical approaches: creating a cryptocurrency exchange from scratch or purchasing a ready-made software solution.

Developing a crypto exchange from scratch

A difficult but competent approach that allows you to get to know the crypto market better by coming through all stages of creating the future service, from concept design to final release. In a basic version, a crypto exchange consists of a trading engine, admin panel, database, user interface, account management centre, and web wallets.

Advantages:

• Confidence in security
• Getting a custom product
• Opportunity to refine and improve an exchange.

Disadvantages:

• Launching ultimately takes longer than installing a ready-made solution
• Turnkey crypto exchange is more expensive as a result.

Polyx as an example of creating a crypto exchange from scratch

We were given the task: to develop a cryptocurrency exchange so that it would be an ‘all-in-one’ service. Its clients were to be not only professional traders and investors, but also ordinary users who could buy cryptocurrency just like any digital product. Therefore, we added various useful services to the basic version to expand audience reach.

Today, Polyx.net platform consists of 11 components:

1. Crypto exchange.
2. Instant exchange service (based on the exchange).
3. Web wallet for cryptocurrencies.
4. Portfolio for crypto assets.
5. Referral program.
6. Blog with cryptocurrency news.
7. Mobile wallet (separate apps for iOS and Android).
8. Native token, PLX, with staking option.
9. Launchpad for crypto projects.
10. P2P marketplace.
11. DEX on a subdomain.

We didn’t implement them all at once, but gradually, in stages. For most customers, this is more convenient: you can control work progress, plan a budget, suggest new ideas during the development process, as well as order additional sections and functions gradually. Creating a turnkey crypto exchange took us 3 months (in 2019); the first 6 components were included. In 2021, we added components 7, 8, and 9, and in 2022, a couple more actual components.

We at Polygant always start with the development of the terms of reference. Without this, it is impossible to estimate the time and cost of creating a turnkey cryptocurrency exchange. The TOR costs ~$5000 and takes 100+ working hours.

White label solution

White label is the adaptation of an already developed product to your brand. A crypto exchange powered by a ready-made engine can be a fill-in alternative or additional service that you would like to offer to your audience. Typically, the main activity of someone who purchases a white label solution is not related to cryptocurrencies, but is quite close in subject matter. In such a case, an affiliated crypto exchange would help meet the demand for related services or attract new customers.

Advantages:

• Quick setup and launch
• Low start-up costs.

Disadvantages:

• No access to the source code, no certainty that it is secure
• Difficulty of custom modification, which will cost more than the engine itself
• Constant dependence on a developer who owns the software.

Financial and legal matters

It may seem that the key thing when ordering a cryptocurrency exchange is to solve technological issues, but in practice it is different. According to our estimations, solving financial and legal matters takes more than half of the time. Let’s list what needs to be done.

Legal entity registration

You should choose a jurisdiction that is loyal to cryptocurrency services. It’s not so easy as cryptocurrencies are still not widely recognized and approved by the governments of most countries. Here are the states that welcome cryptocurrencies: Estonia, Malta, Netherlands, Switzerland, the USA.

Obtaining licences

In many countries, activities related to trading and storing cryptocurrencies require separate licensing. For example, in Estonia, it is necessary to obtain two licences: one for storing cryptocurrencies (for wallets), the other for exchanging cryptocurrencies for fiat (for trading platforms).

KYC, KYT, AML compliance

Financial system participants must comply with anti-money laundering laws (AML). The 5th AML Directive, in force in the European Union since 10 January 2020, imposes strict requirements on the procedures to verify customers and their transactions.

KYC — Know Your Customer. This is a requirement by regulatory authorities to verify identities and residential addresses of users. Of course, you can still collect documents from users, carry out verification, and check data against various databases (PEP, sanction lists, etc.) yourself. But it is easier to turn to services that help implement the necessary verifications easily and inexpensively:

• Sum and Substance from the UK (sumsub.com)
• Trulioo from Canada (trulioo.com)
• Veriff from Estonia (veriff.com).

KYT — Know Your Transaction. This is a requirement by regulatory authorities to verify the cryptocurrencies coming from users and block those received from ‘dirty’ sources. This will prevent coins used in criminal activities, drug trafficking, and financing of terrorism from getting into circulation. Various services that allow you to verify transactions via API will also be of help here.

AML compliance. A crypto exchange should employ a certified AML officer who will track suspicious transactions, file SARs (Suspicious Activity Reports), and send them to financial monitoring services. This officer must have a background in finance and a certificate from a recognized world community, such as:

• International Compliance Association (int-comp.org)
• Association of Certified Anti-Money Laundering Specialists (acams.org).

Make certain you meet the requirements before moving on to opening a bank account. You are unlikely to be able to open an account without this.

Opening a bank account

This is the most difficult task when launching a turnkey crypto exchange or instant exchange service. Banks consider cryptocurrency activities to be high-risk, so with a 99% probability they will likely refuse to open an account in Europe, even if your company has obtained the necessary licences and complies with AML laws.

The only way to get a current account is to open one in an electronic money institution. The way they work is that when you transfer fiat currencies to them, they are automatically exchanged for electronic money. And when you withdraw fiat currencies from the account, this electronic money is redeemed. It’s a bit confusing, but can be used. Strict requirements are also involved there, but they can actually be fulfilled.

Here are the financial institutions that open IBANs for cryptocurrency services:

How much a cryptocurrency exchange costs

Developers aren’t used to specifying the cost for an unknown amount of work. Without holding negotiations with the customer, it is difficult to make calculations because different customers have different requests. Nonetheless, everyone wants to know in advance how much it costs to create a cryptocurrency exchange.

For a preliminary estimate, companies conduct market research and provide a range of service costs so that customers can be guided when planning a budget. We did that too and found out that rates have come down somewhat this year. Today, development services are provided at the following rates:

If you still have questions, ask them via the form. We will explain everything in detail and work out a strategy for developing and promoting your cryptocurrency exchange!