A lot of entrepreneurs have done extremely well for themselves by setting up crypto exchange businesses. These brands have often made billions from spreads between the buying and selling prices, generating enormous profits for their owners.
But, of course, setting up a company like this isn’t as straightforward as it might seem. It often takes a lot of planning to get things done properly.
That’s where this post is helpful. We’re not trying to put you off setting up a crypto exchange. All we’re trying to do is make you aware of some of the challenges that come with it, so you can make the most of your venture.
It’s A Regulatory Minefield
The first issue is that the crypto exchange space is a regulatory minefield. You have to really know what you’re doing to avoid falling foul of any financial laws and rules.
Even the most lenient and free countries have long processes to set up exchanges. For example, Singapore has a process that takes between 12 and 24 months to complete, which isn’t for the faint of heart.
At the same time, you must implement KYC requirements across the board. If you don’t keep track of your customers, governments won’t be happy.
Liquidity Is Challenging
Another issue that’s come to the fore in recent years is crypto liquidity. A lot of exchanges have gone under because they didn’t keep enough of the underlying currencies in reserve for transactions.
Fortunately, you can get support for this these days. There are now liquidity organizations that will supply additional currency when you need it.
You should also follow best practices, like avoiding the temptation to trade. If you want to take a risk with your private money, that’s okay, but not at the expense of de-capitalising the business as a whole.
Security Is A Full-Time Job
At the same time, security is a significant issue at a lot of crypto exchanges. Some of the most popular names in the world have experienced breaches that wrecked trust.
For example, a lot of users want to store their crypto in cold wallets, but also be able to trade it at any time. Because of this, it can be hard to keep track of everything and ensure compliance.
Then, there are the risks associated with smart contracts. For example, if you list DeFi tokens or run staking, it only takes a few corrupt users to bring the entire network into disrepute.
Poor Economics
Finally, many crypto exchanges have poor economics that don’t scale as well as the founding entrepreneur expects. Many of the trading fees are actually razor thin margins on the order of 0.1% (due to the force of competition), so a lot of activity is highly commoditized.
With that said, small exchanges can still make a lot of money. They just need to be careful to keep their costs low and to hire the minimum number of staff possible to enable the business to continue to function. Offering 0% may be necessary if you’re going up against competition like Binance.
Dorothy I. Johnson is the heart and soul of Flash Flyer Blog’s writing team. Dorothy loves storytelling and finds the extraordinary in everyday life. She has a unique voice for sharing travel stories, tech trends, wellness tips, and food finds. Her relatable style makes complex ideas easy to grasp. She also turns simple moments into captivating stories. Dorothy’s background and curiosity inspire her to make content that connects with readers. They can find either practical tips or new viewpoints in her work. When she’s not writing, she likes to explore new places. She experiments in the kitchen or dives into a new personal growth book.
