This is one of the Crypto startup Ideas from the 1001 Startup Ideas collection of YoStartups. This business idea is about establishing a Decentralised Crypto Exchange. The complete transaction will happen between the users over blockchain without the reliance on a third party holding the user funds. The process will ensure that the user has full control over his funds and the crypto exchange is more transparent and risk-free.
Market Definition For Decentralised Crypto Exchange
As on Feb 2018, the market cap of all cryptocurrencies did stand at around $417 billion, according to data from industry website CoinMarketCap. It hit an all-time high of more than $800 billion in early Jan 2018, before collapsing as a result of high market sell-off.
The clear winners of this cryptocurrency boom are the exchanges. As per an estimate by Bloomberg using trading volume and exchange fee information, the top 10 crypto exchanges are generating as much $3 million in fee a day, which leads them heading for more than $1 billion per year.
Asia is emerging as the strongest playground for cryptocurrency and more than half of the cryptocurrency trading happens in Asia-based exchanges, according to data compiled by smart contract platform Aelf. Regions’ young population which adopts to new technologies and a strong gaming culture which incentivizes virtual transactions are cited as some of the key reasons for Asia’s dominance.
Competitor Analysis For Decentralised Crypto Exchange
The whole concept of having a centralized exchange to manage a decentralized asset doesn’t make sense in itself. Blockchain experts and entrepreneurs across the world realize the downside and are working to create decentralized crypto exchanges.
NEX, WavesDEX, Bisq, and Stellar are some of the examples of a decentralized platform. Most of the platforms are still not ideal and does not completely remove the downsides of central exchange but are evolving continuously to make the system as decentralized and transparent as possible.
Like for London based NEX group, they have built the exchange on NEO blockchain but they will have one system component that will be off-chain and will be centralized. If someone creates an order on the exchange, the centralized part will have access to the fund that is included in that specific trade; rest all the funds will stay with the users, unlike traditional exchanges.
While in WaveDEX the matchmaking between buyer and seller is centralized while all other steps are done on WAVE blockchain.
Pain Point & Target Audience For Decentralised Crypto Exchange
The target audience for the proposed startup would be any individual or business trading/investing in cryptocurrencies.
One of the biggest concerns with these centralized exchanges is the security risks as they are always on the target of hackers. One of the largest cryptocurrency exchanges in Japan has fallen victim to hackers thanks to their negligent storage practices. They have reportedly lost over half a billion dollars’ worth of digital currency from their hot wallet. Liquidity and transaction time is also something which concerns users about using these centralized exchanges.
Another concern that users have is that the exchange being blacklisted and blocked by the government and they losing their hard earned money with it. Government is also not entirely wrong in going after some of these exchanges as they have been found involved in Ponzi schemes.
Value Proposition For Decentralised Crypto Exchange
Most of the security risks are only possible because exchanges store a large number of digital assets in hot wallets which are susceptible to attacks. In the situation, a decentralized exchange will prove secure as the digital assets will stay with the users and exchange happens through smart contracts in real peer-to-peer fashion. Also as there will be no third party involved in the transaction, it will be more transparent, faster and cheaper.
The biggest advantage of the decentralized exchange will be lesser or no control of the national and international governments over the functioning of these exchanges and they truly operate on the borderless model.
Business Model For Decentralised Crypto Exchange
The proposed startup can start their operation on the similar model as adopted by the standard exchanges where it will charge a small commission for every successful transaction (still much lesser than the centralized exchanges). The startup can also charge a fee in terms of legal and due diligence fee for onboarding any new token on the platform.
The startup also needs to incentivize the participants who would come on the network and provide computational power to process and verify any transaction happening on the network.
Way to market For Decentralised Crypto Exchange
The first step for the proposed startup to understand and clear all the legalities regarding setting up a crypto exchange in the country of launch.
The startup would then need to work on formulating the smart contract logic which can generate cryptocurrency tokens, very much similar to how it works in Ethereum. Once a smart contract logic has been commissioned, there needs to be a validating procedure in place which verifies the integrity of the trades taking place. There is a need to set up some kind of digital signature procedure that can be done by a large number of participants (or verifiers). Only if a majority of participants approves, the transaction is considered valid.
Then the startup should partner with payments companies and banks to facilitate the conversion to and from the fiat currencies. This partnership will be critical to take the concept of decentralized exchange to the mass market. And once these basic setups are done, the startup is good to launch after completing its architecture and UI/UX.
Milestones For Starting a Decentralised Crypto Exchange
The startup should consider launching the decentralized exchange platform within the first 6-8 months of the inception and then keep on including partners like banks and other currency exchanges. The startup should target to reach over $100 million trade volume over next 6 months.
Investment Needed For Prototyping Decentralised Crypto Exchange
The startup should look to raise upto 100k for the product development and initial marketing. Once the platform is set-up and functional there is literally no cost associated to keep it operational, so the money is only needed for one-time platform set-up.
The startup should try to get into one of the blockchain specific accelerators which will not only provide the access to seed fund, but also the blockchain expertise and legal advice.
Investors / Expert Take on a Decentralised Crypto Exchange
Over last few years, we have seen hundreds of centralized crypto exchanges like Bithumb, Bitfines have come up. However there are a whole lot of issues and lack of trust associated with these exchanges; they are prone to cyber attacks, have scaling issues, got caught in Ponzi schemes and even governments are after them.
Also, the whole concept of centralized exchange goes against the ethos of having digital currencies and blockchain as they were created out of the need for decentralization. So there is no denying that the tech geeks and propagators of blockchain & crypto will move these exchanges to a decentralized model.
Copyright All Rights Reserved © Yostartups | Please do not copy without written permission | www.yostartups.com
This 1001 startup ideas article is from Yostartups, YoStartups is a Pre Accelerator, and it empowers entrepreneurs to propel their business ideas into successful ventures. Yostartups’ core mission is to take the message of entrepreneurship to 1 billion people globally by 2020.
In case you are looking at scaling or launching a venture on similar lines, you can apply for our virtual acceleration program Excelrate on our website, Yostartups.com, Yostartups’ Excelrate program will help you in streamlining and structuring your startup idea. We have limited scholarships and discount packs for deserving business ideas, depending on the strength of your startup ideas, you may qualify for a discount.