Competitive Analysis - Exchanges
https://docs.google.com/document/d/1DVgL27t-zRhEgad6xoL8OiC_rxWqYUYxTIT2Djvv80E/edit
Forbes compared 25 exchanges and put together a list of the 10 best Exchanges. Criteria for evaluating them included trading features, educational resources, Customer Service, Staking and more. The Forbes 10 biggest exchanges are as follows: Coinbase, Binance, BitStamp, BitFlyer, BitYard, Crypto.com, FTX, Gemini ,Kraken, KuCoin.
The Forbes top 5 as of October 2022 is: Kraken, Gemini, Crypto.com, KuCoin, Coinbase.
The top exchange list is a bit different on Coin Market Cap, where they judge exchanges by liquidity, trading volume and web traffic. At the time of writing Binance was clearly the #1 exchange with >$8 billion traded in the last 24 hours, over 1500 markets and over 17 million weekly visits. The #2 exchange was FTX, closely followed by Coinbase. Both had >$500 million in trading volume, between 400-600 markets and roughly 1.5 - 2.5 million weekly visits. Kraken and Gate.io make it into the CMC top 5. KuCoin, MEXC, Bitfinex, CoinCheck and Gemini complete the top 10.
How do they help users build confidence and trust in crypto?
Psychology Today published an article with strategies on how to build trust and increase confidence. Although it is aimed at individuals, I think their definitions and strategies can be relevant to a competitive analysis.
One quote stands out in particular ‘Trust means we have confidence in the intentions and motives of the other party’.Users need to have confidence in their crypto exchange. So what do these exchanges do to inspire user confidence?
PT’s first strategy for building trust is to ‘trust with generosity’. Exchanges often incentivise users in different ways which can be perceived as generosity. Staking is a common form of incentivisation which is like paying users interest on the assets they deposit. Coinbase even has an educational system that combines user training with incentivisation.
The second strategy is ‘be flexible’. Crypto exchanges operate 24 hours a day and accept deposits by credit card, bank transfer, P2P crypto transfers and more. Apart from the usual trading offering; margin trading, lending and borrowing are common features amongst exchanges. FTX has tokenized stocks (crypto representations of real stocks like Apple & Tesla) and also a blockchain gaming division.
Partnerships between Exchanges and crypto projects are very common. I already mentioned Coinbase and how they collaborate with projects to offer an incentivised educational platform. KuCoin has a system in support of the Polkadot Parachain Auctions, an NFT launchpad and a Fractional NFT trading platform. Binance even has their own blockchain where projects can launch DeFi services on their platform. Coinbase offers a variety of additional services including their own wallet which can be used in DeFi. Exchanges typically invest in crypto projects via their own Venture Capital arm too.
PT cites ‘be dependable’ as the third trust building strategy. Many exchanges are regulated by Financial authorities, have insurance which can refund users in the event of a cyber attack and have very public founders.
The fourth strategy is ‘be consistent’. Plenty of investors value longevity and in crypto this is no different. The Voyager exchange was founded in 2018 but filed for bankruptcy in 2022. Voyager has now been acquired by FTX. The longer an exchange has been running, the more trustworthy they seem. Especially if they have been able to weather bear markets, cyber attacks and other threats.
Coinbase was founded in 2012, Gemini was founded in 2014, Crypto.com was founded in 2016 and Binance was founded in 2017. I think the fact that these exchanges have been around for many years helps to inspire confidence. Crypto.com suffered a 30% drop in price after they reduced user rewards to a more sustainable level. Consistency matters.
Last but not least is ‘be open’. Crypto is a very complex field encompassing concepts from both Finance and Computer Science. In addition to the level of complexity, there are numerous scams and bad actors. It’s important for an exchange to be as open and transparent as possible.
All the major exchanges have plenty of helpful information on their websites and accompanying blogs. Gemini have a Cryptopedia to help users clarify their understanding. Binance has an Academy to help educate their users.
Personally I think marketing is also important in inspiring confidence. As an investor myself I want something I invest in to grow in size. I feel more confident in my investments when I see the brand getting more exposure. Stadium naming, Sponsoring Formula 1 cars, ads being run during the Superbowl. High profile marketing strategies fill me with confidence when I recognise the brand of an exchange I use.
Community building is another important marketing strategy that I believe inspires trust. As an investor I like to see growing metrics in social media following. Platforms like Discord, Telegram and Twitter are well known for being homes of crypto engagement. The CEO of Coin Metro has regular AMAs on YouTube and answers questions from the community. KuCoin has an active community on Reddit and even offers support on Social Media. Affiliate marketing is another useful strategy particularly on YouTube, where users already have people they trust and visit regularly for crypto news and advice.
In summary, Exchanges help users build confidence and trust by: