Editor's Note: This article comes fromFirst class warehouse blockchain research institute (ID: first_vip1), reprinted by Odaily with authorization.

Editor's Note: This article comes from

First class warehouse blockchain research institute (ID: first_vip1)

First class warehouse blockchain research institute (ID: first_vip1)

, reprinted by Odaily with authorization.

Cryptocurrency exchanges are scrambling to adopt financial services already available in traditional finance. Due to the low cost for customers to switch exchanges, the crypto "banking" industry is also changing rapidly, and those exchanges that do not keep pace with the times will be eliminated in an instant.

• Apart from public chains, by far the biggest winners in the cryptocurrency space are exchanges: Coinbase, Binance, Liquid Global, BitMEX, and Kraken are all worth more than $1 billion (some exchanges may have different values). Binance is even the fastest company in history to reach "unicorn" status.

• While values ​​are soaring, the crypto industry is changing with each passing day. Established companies need to be more vigilant. Since 2016, in terms of spot transaction volume, the market leader has changed several times, and the stock of BTC in the exchange can directly show this situation (in encrypted transactions, BTC transactions dominate):

Without any major shocks (hacks or regulatory changes) to Poloniex, the company’s market share fell from almost 60% in early 2017 to 1% in May 2018 and was eventually acquired.

There are 2 reasons for market share fluctuations:

Low cost of transferring from one exchange to another: If a user does not like the service provided by one exchange, they can withdraw their assets and transfer them to other exchanges within minutes. No paperwork required.

Due to the high liquidity of users, the business between exchanges will be popularized in the ecology more quickly. If one exchange offers a new feature, other exchanges need to offer the same feature in a short period of time, or risk falling behind. Overall, crypto companies are among the fastest growing in history due to a unique combination of dynamic markets, regulation, arbitrage, and purely digital offerings.

While this is great for customers, it puts a lot of pressure on exchanges to try to stay ahead of their peers.

In the analysis of this article, we will examine the products/services that are likely to become standard on every spot exchange in the next two years.

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(1) Interest

In an era where fiat currencies are on the verge of zero or negative interest rates, crypto interest accounts can be a gateway technology to retain existing users and attract new ones. We predict that the income will mainly come from three aspects: staking, borrowing within the exchange (margin or market maker), the exchange providing external (DeFi) borrowing, and providing liquidity.

1.1 Staking service

Most networks such as Cosmos, Tezos, and Algorand, as well as upcoming networks such as DFinity, Polkadot, NEAR, and Ethereum 2.0, employ a PoS mechanism. In PoS, cryptocurrency holders can participate in the network or get rewarded by staking.

If the user already holds tokens on the exchange and the exchange supports stake, then the user can earn profits; if not, the tokens placed on the exchange are meaningless. Recently, Coinbase, Binance, and Kraken have all supported stake Tezos tokens.

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The picture shows tokens that support staking

1.2 Internal Market

Provide users with a lending market within the exchange, and the funds do not need to leave the exchange. There are two main sources of demand to borrow tokens: margin trading and market makers. The greatest demand for borrowing comes from margin. On Bitfinex, Huobi, OKEx, and Binance, users need to have funds and deposit them in a margin wallet before they can trade contracts.

So, structured borrowers for cryptocurrencies are short sellers, whereas structured borrowers for dollars and stablecoins are people looking to trade with leverage.

Margin traders on Binance automatically enter the BNB lending pool, paying interest to BNB depositors.

• Market makers have less demand and will borrow cryptocurrencies in USD or USDT.

• 1.3 External market

• Exchanges do not want customers to withdraw funds themselves, so they act as brokers. The benefits of doing this are manifold:

There are economies of scale, for example, Binance Broker can offer users a lower fee tier on another exchange.

The exchange has a more holistic view of users' risk profiles, which reduces capital requirements.

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ETH Historical Returns on Uniswap

Exchanges can also use DeFi like Maker, Compound, Kyber, DYDX or Uniswap on behalf of their users. OKEx already supports the Dai Dais Savings Rate.

• Investors can use derivatives to generate interest. Exchanges can offer opportunities to make money for their customers while also providing a great user experience without any complex on-chain transactions and custody.

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• (2) Payment

These transactions may not be executed in the public chain because the amount is too small, and the transaction fee is high.<>exchange

Private ledgers can process transactions faster and more privately than public ledgers.

Can provide a better user experience by translating to human-readable account names, such as email addresses, rather than public key hashes.
2.1 Exchange

Companies providing clearing and settlement services to institutions include BitGo and Liquidity Offset Network, a joint venture between Circle, Coinbase, Galaxy Digital, Bakkt and others.<>merchant

Financial systems unwilling to join competitors could benefit from more “neutral” solutions such as Blockstream’s Liquid, the MultiSig wallet between large exchanges. Although Liquid has not achieved any real adoption so far, we see that this is likely to change the use case when fees skyrocket. Exchanges can allow users to quickly and privately exchange, thereby solving the problem of slow speed and high fees of the public chain.

If the transaction costs of the base layer of the public chain become higher, other solutions need to be sought.

2.2 Customers

Exchanges make it easier for merchants to receive cryptocurrencies and users to spend them.

Typically, merchants who accept payments in cryptocurrencies sell their cryptocurrencies immediately in order to avoid losses from price fluctuations, so merchants are natural sellers of cryptocurrencies, so it makes sense for exchanges to process payments directly. Coinbase has launched Commerce.coinbase.com, one step ahead of the market.

On the user side, cryptocurrency-enabled Visa and Mastercard lagged behind expectations considerably in 2017-2018 due to regulatory reasons. Now, there is already a Coinbase card and Crypto.com (US + SG only), Binance has also launched a card specifically for travelers. These cards have the dual effect of allowing users to spend cryptocurrencies more easily and also increasing the trading volume of crypto/fiat pairs for exchanges.

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Uncertainty about taxes and how they are calculated adds to the psychological and financial costs of holding and spending cryptocurrencies.

(3) Tax service

Exchanges and users have an aligned interest in preventing funds from flowing from crypto to tax (through taxation and liquidity management).

3.2 Ease of integration with tax services

Uncertainty about taxes and how they are calculated adds to the psychological and financial costs of holding and spending cryptocurrencies.

3.1 Educational significance

Most tax lawyers and financial advisors are inexperienced when it comes to filing cryptocurrency taxes. Therefore, it is very important for users to know the process so that they can calculate their taxes and avoid losses. To this end, Coinbase has created a tax guide for its US users.

3.2 Ease of integration with tax services

Exchanges can do a better job of helping users pay their taxes at the end of the year.

The premise: Exchanges all need to have a holistic view of their clients’ crypto portfolios and transaction history.

Each exchange has native access to asset and transaction data, but for users trading across multiple exchanges, there needs to be a way to obtain external data (e.g., through an information sharing agreement) or export data to a third party on the exchange In tax programs such as TurboTax, CoinTracker, ZenLedger or CoinTracking.

Coinbase's native profit and loss tracker for investors without any third-party calculation of taxes.

CoinCenter is trying to ease the regulatory burden, but crypto exchanges can function by keeping track of all transactions.

3.4 Liquidity management

An important part of investing is properly managing one's liquidity needs. Whenever users are forced to liquidate assets for liquidity or tax reasons, they tend to get a lower price than usual.

In this case, exchanges can provide emergency liquidity in the form of crypto-collateralized loans. Similar to margin trading, users can borrow funds on the exchange to pay fees, avoiding the need to incur additional fees for selling assets

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