Crypto exchanges product offering: a trimline analysis
Across the past years, crypto exchanges evolved quite significantly. Moving from necessary spot trading of cryptocurrencies toward more sophisticated features. They managed to build a crypto journey to their customers by creating a parallel with the traditional finance which helped them widen their scope and attract more professional investors – both traders and institutional investors – by feeding their risk appetite (e.g. Margin trading) and their ability to easily earn money (e.g. lending, staking).
That said, crypto exchanges did not have the same level of maturity across time. The first movers’ advantage is critical in this growing market where customers are continuously looking for ease of access and broader investment horizons.
To better understand the strategic intent of some top crypto exchanges, we have taken a look at the product offerings timeline of 5 top crypto exchanges: Coinbase, Binance, Kraken, Bitfinex, and Bitstamp.
Before 2017, the Binance behemoth was not born yet, the crypto exchanges that we assessed had already started providing other features besides basic spot trading. All provided access to wallets on their platforms to store cryptocurrencies. Kraken and Bitfinex managed to be ahead of their peers in launching margin trading (up to 3 to 5 leverage respectively). Their peers Coinbase and Bitstamp, benefiting from more compliant platforms offered first the possibility to buy crypto by credit/debit cards attracting, therefore, a larger base of customers due to ease of access. Last but not least, Bitfinex offered first (Dec. 2016) an OTC trading desk.
In 2017, the birth and rise of Binance was phenomenal and brought the heat to the established crypto exchanges. In 2017, they provided basic spot tradings, wallets to their customers and they had a significant differentiating factor: Initial Exchange Offerings. The IEOs combined with the 2017 crypto bull run helped Binance generate a substantial influx of customers. It is interesting to note that the crypto bull run even led the Chicago Mercantile Exchange to launch Bitcoin Futures.
In 2018, following the Crypto bubble burst it appears that crypto exchanges dit not launch many features but were instead laying the ground for the year to come, hopping probably for more stability in the market. Among the new features observed, Coinbase launches a stablecoin USDC (Oct. 2018) and Bitfinex decided to list stablecoins on its platform (Dec. 2018). Also, Coinbase and Kraken chose to enter the OTC trading market (Q3 2018). Binance and Coinbase launched venture funding platforms to support crypto and blockchain projects (Q2 2018). Lastly, Coinbase entered the indices market by launching a crypto index – market cap. weighted – which it opened for investing in 2018, closed it and reopened a new one in 2019.
Finally, 2019 and the beginning of 2020 have been rich with new features deployment. Binance launched a dollar-backed stable coin (Q3 2020) and Kraken listed USDC (Q1 2020). Coinbase disrupted the market by providing a visa card linked to the crypto wallet to enable customers to spend cryptocurrencies instantaneously (Q2 2020). Also, Binance entered the race in OTC trading (Q1 2019) and later in the year Margin trading (Q3 2019) along with Coinbase. Binance, Bitfinex, and Kraken decided to catch up on their peers by enabling the purchase of cryptocurrencies through credit/debit cards on their platforms. Binance even decided to launch a Peer 2 Peer platform to buy and sell crypto between customers without paying fees (Q1 2020). Coinbase, Binance, Kraken, and Bitfinex decided to provide value-added services (Q3, Q4 2019) by enabling them to lend money and earn interest – fueling the margin trading service – and also earn money through staking – deposit & hold. On the venture side, Bitfinex decided to enter the Initial Exchange Offering race with Tokinex (May 2019) hoping to increase to the influx in its platform.
Finally, on the derivatives side, the crypto finance is catching up on the traditional investment as Kraken, Binance, Bitfinex and the NYSE are catching up on the CME by launching cryptocurrencies futures. Bitfinex and the CME are even offering options trading.
Crypto exchange had a good run this last year with multiple new offerings, but the future remains uncertain as the markets are being massively disrupted by the COVID-19 virus spread. The question remains: Is a crisis is looming and trust in the financial system might decrease, will this market disruption benefit in the long term the crypto exchange?