An exchange makes most of its revenue from customers buying and selling digital assets. Exchanges prefer to have customers that trade actively, as customers who simply buy and hold barely generate revenue. However, 60%+ of the digital assets on exchanges are not traded at all, making exchanges miss out on serious revenue. At the same time, many customers are underserved, missing features that make it easy to navigate in the crypto space. This begs the question, how can exchanges better serve their customers without increasing costs? We spoke with over 30 exchanges and 50 investors to reveal some of the most common reasons exchanges’ customers stay inactive.

They are overwhelmed by all the options they have.

The average exchange has a lot of assets listed. The average customer doesn’t want to research all these assets and often does not choose anything.

If they choose, they choose poorly.

Since most customers don’t want to spend weeks researching assets, they end up choosing a low amount of assets. This gives them a higher risk profile, as they are exposed to only a few assets. Even worse: They might end up with a few poor choices. A customer buying a few coins that slowly die out is catastrophic, as the customer will probably never invest in cryptocurrencies again since they lost trust.

Managing a portfolio takes too much time.

The risk-averse customer knows how to spread well, researches all assets, stays up to date with the market, and rebalances growth differences frequently to maintain the same risk profile. However, if you want to rebalance your portfolio frequently and own many assets, this takes a significant amount of time to do manually. Investors often don’t want to actively manage their portfolio.

How do we make an exchange more profitable while serving customers better?

The stock market has it covered by indexes and ETFs (like the S&P 500).

An index fund contains a list of assets within a certain category. The index could cover for example all big assets in the market, but also a subcategory of the market such as a Proof-of-Stake, Metaverse, layer two, NFT or DeFi. This makes it very easy for a user to invest in what they see potential in. They don’t have to research every single asset in the industry, they are less overwhelmed, their risk profile improves, and since an index is automatically rebalanced no active management is needed. Simply buy, or even better DCA, and sit back and relax.
Compared to a buy & hold user, trading volume increases anywhere between 5 to 10 times per year. There is a reason that the big exchanges like Binance and Bitpanda are rolling out similar solutions. Everybody wins.

But it gets better.

We developed a trading engine that optimizes the trades in a basket or portfolio (based on an index) by training models with machine learning. Not only does this help to execute with a better price, but orders are also spread out so that the liquidity on an exchange increases. A sophisticated (market) maker module is built in, so that users on the exchange are able to faster buy and sell their assets. This makes the product more profitable for exchanges, and their users.