Development of Crypto Exchanges, P2P Platforms, and Instant Exchange Services

• What a crypto exchange is
  • Popular cryptocurrency exchanges
  • Revenue of popular exchanges
• What a P2P platform is
  • How P2P platforms operate
• What an instant exchange service is
• How to create a crypto exchange
  • Developing a crypto exchange from scratch
  • White label solution
• Financial and legal matters
  • Legal entity registration
  • Obtaining licences
  • KYC, KYT, AML compliance
  • Opening a bank account
• How much a cryptocurrency exchange costs

With the spread of the first cryptocurrencies, the need to freely exchange between them and also for fiat currencies arose. The first crypto exchanges then appeared, making it easy to exchange bitcoin for altcoins and even fiat, as well as deposit and withdraw currency via electronic money, bank cards and accounts. This provided a powerful stimulus to the development of cryptocurrencies, leading to a sharp increase in prices. The number of different trading platforms has grown along with them.

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 to back with assets available on balance, maintains records of orders in the database, and prepares data for display in a web/mobile application or trading terminal.

The first crypto exchanges were centralized and only cryptocurrencies were traded there. As the market developed, they began to be conditionally classified by type:

• Bitcoin exchanges or altcoin exchanges: offer trading only in cryptocurrencies, mainly in pair with bitcoin and popular altcoins, without the use of fiat currencies.
• Cryptocurrency exchanges with fiat support: offer trading in cryptocurrencies both among themselves and in pair with fiat currencies.
• Cryptocurrency exchanges with margin trading: provide leverage to their users.
• Cryptocurrency derivative exchanges: offer trading in contracts on the future prices of cryptocurrencies by placing orders for a short or long position.
• Centralized exchanges (CEX) are owned by companies that set the rules for trading and usually operate under a licence, meaning they’re subject to regulators.
• Decentralized exchanges (DEX) 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.
• Hybrid exchanges (HEX) combine the functionality and liquidity of a CEX with the privacy of a DEX.

Many crypto exchanges simultaneously fall into several types. So these types may simply be considered characteristics used by traders to determine their preferred place to trade.

Popular cryptocurrency exchanges

According to Coinmarketcap, there are more than 500 cryptocurrency exchanges operating on the market. Each of them tries to provide users with special conditions.

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

• 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.

Today, the largest and most popular are Binance, Coinbase Pro, Bitstamp, Kraken, and Kucoin.

Binance (Malta)

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

Specifics of Binance:

• Centralized, there is also separately decentralized.
• Native Binance Coin (BNB) and stablecoin Binance USD (BUSD), giving benefits to holders.
• 370 cryptocurrencies that can be traded in pairs with BNB, BUSD, BTC, ETH, TRX, USDT, XRP, as well as fiat.
• 8 fiat currencies: AUD, BRL, EUR, GBP, RUB, TRY, UAH, NGN.
• Support for derivatives and margin trading.

www.binance.com

Coinbase Pro (US)

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, and 10 tools to developers.

Specifics of Coinbase Pro:

• Centralized, registered with FinCEN.
• Native stablecoin USD Coin (USDC).
• 213 cryptocurrencies that can be traded in pairs with BTC, ETH, DAI, USDT, USDC, as well as fiat.
• 3 fiat currencies: EUR, GBP, USD.
• Support for derivatives.

pro.coinbase.com

Bitstamp (Luxembourg)

The company Bitstamp was established in Slovenia in 2011, opened an office in London in 2013, and moved to Luxembourg in 2016. The exchange offers a standard trading interface for private users, a pro version for professional traders, and a separate one for institutional investors.

Specifics of Bitstamp:

• Centralized, registered with FCA and CSSF.
• 77 cryptocurrencies that can be traded in pairs with BTC and fiat.
• 3 fiat currencies: EUR, GBP, USD.

www.bitstamp.net

Kraken (US)

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, such as the exchanges Coinsetter, Cavirtex, CleverCoin, and Crypto Facilities; and the services Glidera and Cryptowatch.

Specifics of Kraken:

• Centralized, registered with FinCEN (US) and FINTRAC (Canada).
• 194 cryptocurrencies that can be traded in pairs with BTC, ETH, and 31 other altcoins, as well as fiat.
• 7 fiat currencies: AUD, CAD, CHF, EUR, GBP, JPY, USD.
• Support for derivatives and margin trading.

www.kraken.com

KuCoin (Seychelles)

KuCoin was launched in 2017, with its headquarters in the Seychelles. It offers 4 services for regular trading and 4 for derivative trading, plus 7 earning and investing services. In 2018, the company opened KuCoin Labs, an investment and research laboratory, and in 2021, it launched the KuCoin Community Chain testnet with a focus on inclusiveness and community outreach.

Specifics of KuCoin:

• Centralized, not licensed and not registered with regulators.
• Native exchange KuCoin Token (KCS).
• 702 cryptocurrencies that can be traded in pairs with BTC, ETH, DOGE, KCS, TRX, USDT, USDC.
• Support for derivatives and margin trading.

www.kucoin.com

Revenue of popular exchanges

Cryptocurrency exchanges earn on commissions for trading and for withdrawing crypto/fiat from the account. Trades are taxed at a minimum if native exchange tokens are staked or settled for a commission, as well as if you trade in very large volumes monthly, therefore fees in the table start at 0%.

As a rule, no one charges a deposit fee. And the withdrawal fee almost completely goes to pay miners or the network via which the transaction is carried out. Considering that each network has its own tariffs, we used only the withdrawal of BTC and ETH for reference.

The last column, with volumes as of January 2023, will help you calculate the approximate daily revenue from spot trading only. Take the average maker and taker fees 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 one another without the mediation of a third party. 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 just a few seconds, you need to fill in several fields of the search form.

How P2P platforms operate

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

• Deals are concluded by users themselves, and not via automatic execution of orders (there aren’t any, just as there aren’t any order books).
• The best offer is selected by the user based upon the specified cryptocurrency, amount, and terms of payment.
• There are many more payment methods: bank cards and accounts, transfers via SWIFT and SEPA, as well as electronic payment systems like PayPal.
• There are no commissions for deals because users conclude them directly, and not through a trading engine.
• Sellers’ cryptocurrencies are stored in escrow accounts, which protects both them and buyers from non-fulfilment of the terms of the deal.
• Most platforms have a user rating system to improve the quality and security of deals.
• When making a deal, the seller and the buyer can write messages in a chat window.
• If a dispute or any issues arise between the parties during the deal, they can contact customer support by filing an appeal through their personal account.

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

• Interface. Design an intuitive and user-friendly interface so that users can quickly create or find ads and close deals easily.
• Security. Provide a mandatory set: two-factor authentication, encryption, and confirmation of withdrawal of funds using a code sent via SMS and email.
• Reputation. Maintain it at a high level to stand out among competitors. Sellers and buyers today carefully check exchange services because they have repeatedly encountered scams in the crypto industry.

Users additionally pay attention to the availability and efficiency of customer support, 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. Submit a request, and after a detailed discussion, we’ll get started on your project!

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 directly. In this way, it more resembles an offline currency exchange point.

While on a crypto exchange, prices are dependent upon 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 aren’t suitable for exchange schemes like ‘pump and dump.’ On the other, crypto exchanges are more democratic because prices are influenced by many participants and not just one person.

Creating an instant exchange service is more profitable than a crypto exchange: development will cost 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 to capitalize on the difference. At the same time, 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 such characteristics as:

• Opening hours;
• Efficiency of customer support;
• Variety of currency pairs with popular coins and tokens;
• Small commissions or differences with market prices;
• 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 and ToR to final release. In a basic version, a crypto exchange consists of a trading engine, admin panel, database, user interface, account management centre, web wallets, and analytics.

Benefits:

• 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.

Example of creating a crypto exchange from scratch

Polyx.net is an example of an exchange that our team developed from scratch.

We were given the task of developing not just a cryptocurrency exchange, but an ‘all-in-one’ service. The main objective was to launch a convenient platform not only for professional traders and investors, but also for ordinary users to purchase cryptocurrency just like any other digital product. We therefore added several useful services to the basic version to expand audience reach. The platform currently consists of 10 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 service.

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. We added components 7, 8, and 9 in 2021, and this year included a P2P service.

It all starts with the development of the terms of reference. Without ToR, it’s impossible to estimate the time and cost for creating a turnkey cryptocurrency exchange. This mandatory stage takes about ~100 working hours and costs ~$5000.

White label solution

Tailoring an already developed product to your brand. A crypto exchange powered by a ready-made engine may be a fill-in alternative or additional service for your audience. Typically, the main activity of someone who purchases a white label product is not related to cryptocurrencies, but is very close in subject matter. And a crypto exchange may be needed to meet demand or to follow a trend.

Benefits:

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

Disadvantages:

• No access to the source code, no certainty that it is secure;
• Difficulty of alignment for specific requirements, it will cost more than the engine itself;
• Dependence on a third party, 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 this isn’t the case. According to our estimations, solving financial and legal matters captures over 50% of the time. Here is what you’ll have to deal with.

Legal entity registration

You need to 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. And these states welcome cryptocurrencies:

• Malta;
• Netherlands;
• United States;
• Switzerland;
• Estonia.

Obtaining licences

In many countries, activities related to trading and storing cryptocurrencies require separate licencing. For instance, in Estonia, it is necessary to obtain two licences: one for cryptocurrency wallet functions (storage of cryptocurrency), the other for exchanging cryptocurrencies for fiat money.

KYC, KYT, AML compliance

As a participant in the financial system, you’ll have to 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 requirement forces verification of the identity and address of residence of users. Of course, you can still collect documents from users, carry out verification, and check against various databases (PEP, sanction lists, etc.) yourself. But it is easier to turn to auxiliary services that simplify and make it fairly inexpensive to implement the necessary checks:

• Sum & Substance https://sumsub.com
• Trulioo https://www.trulioo.com
• Veriff https://www.veriff.com

KYT — Know Your Transaction. A relatively new requirement by regulators says that all crypto exchanges are required to check the cryptocurrencies coming from users and block those received from ‘dirty’ sources. This is to prevent coins used in criminal activities, drug trafficking, and financing of terrorism from getting into circulation. Various services that allow you to check transactions via API will also be of help here.

AML compliance. According to the law, a certified AML officer must be on the staff of a crypto exchange. They are responsible for tracking suspicious transactions, filing SARs (Suspicious Activity Reports), and sending them to financial regulatory services. This employee must have a background in finance and a certificate from a recognized world community:

• ICA (International Compliance Association) https://www.int-comp.org
• ACAMS (Association of Certified Anti-Money Laundering Specialists) https://www.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 creating a turnkey crypto exchange or instant exchange service. Banks consider cryptocurrency activities to be high-risk, so with a 99% probability they’ll likely refuse to open an account in Europe, even if your company has received 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 essence of what they do is that when you transfer fiat money to them, it is automatically exchanged for electronic money. And when you withdraw fiat 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 current payment systems that open IBANs for cryptocurrency services (as of January 2023):

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’s difficult to make calculations because different customers have different requirements. 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 navigate when planning a budget. We did that too and found out that rates have come down somewhat this year (they just adjusted after the boom in 2021). In 2023, development markets in different macroregions provide services at the following rates:

• The cost of a made-to-order crypto exchange in Europe ranges from €60,000 to €288,000. In North America it ranges from $69,000 to $331,000.
• The cost of a made-to-order P2P platform in Europe ranges from €43,000 to €173,000. In North America it ranges from $49,000 to $199,000.
• The cost of a made-to-order instant exchange service in Europe ranges from €36,000 to €144,000. In North America it ranges from $41,000 to $166,000.

Still have questions? Submit a request, and we’ll explain everything in detail and together work out a strategy for developing and promoting your cryptocurrency exchange!