A brief history of crypto exchanges: a glimpse into the evolution of the most powerful organization in the blockchain industry

Written by: Nathaniel Whittemore & Clay Collins

Compilation: Lu Jiangfei

Source: ChainNews ChainNews

I. Preface

The cryptocurrency industry is a mixed bag of idealists and opportunists; true believers and arrogant speculators; HODLer and Trader. But they all have one thing in common: they have a belief in crypto.

Those who have a long-term vision are most concerned about how to build a financial infrastructure for a new era, and they need speculators to help them grow their networks. In turn, speculators need the stories, themes, and vision provided by the former in order to get a return on their investment.

Despite so many differences, these groups share a common industry infrastructure: exchanges .

Cryptocurrency exchange is the first and currently the most important business established around crypto protocols. The mission of cryptocurrency exchanges is to help this faith-based business model work. In fact, in addition to acting as a practical platform for acquiring, selling, and betting on cryptocurrencies, the exchange also represents the most iconic brand in the crypto industry, and the leaders are also the most well-known and controversial figures in the industry.

Since the birth of Bitcoin to today, the meaning of crypto exchanges has actually changed dramatically. In many ways, the history of cryptocurrency exchanges can almost represent the development history of the entire crypto industry. Exchanges are business, or rather the most wealthy business .

When we observe the changes, developments and evolutions of exchanges, what we really see is the rapid response that people have made to the changing needs of the crypto market.

The rapid evolution of the crypto market is dizzying. In the early stages, exchanges simply provided some of the most basic infrastructure needed for bitcoin trading. Now, the exchange has fallen into a battle for fast-growing global dominance. In order to get out, it has to launch extremely high leveraged trading services (but at the same time, on the other hand, it is becoming more and more compliant ) .

It's instructive to see which exchanges lead the world and why. For example, during the long-tail ICO era, Binance dominated, and during the bear market in 2018, leveraged trading on BitMEX became mainstream. Did this change happen by accident? From "When to fly to the moon" to the CEO of another platform, the favorite proverb is "good traders dangle in two directions." In fact, this is exactly why the exchanges are constantly adapting to the market demand in different periods.

We will divide the history of the exchange into several stages. At each stage, we will tell the story of exchange competition during this period and the cycle in which the larger market is in.

Our starting point is not really the earliest exchanges such as Binance, Mt. Gox, or BitcoinMarket.com, but we will go back to earlier times before Bitcoin was invented.

Introduction

If Bitcoin is attracting those who are eager to disrupt the currency system, then Ethereum is like a beacon for those who desire to cross the once disruptive but increasingly monopoly Web 2.0.

If 2017 is the "Year of Binance", then 2018 is the "Year of BitMEX", which launched a peculiar product such as perpetual swaps, a future that never expires.

The story of the exchange is like a powerful lens that can look at the story of the entire cryptocurrency industry.

Prehistory

For many, the cryptocurrency story began with "the UK Chancellor of the Treasury on the verge of a second round of bailouts for banks".

(Chain News Note: Satoshi Nakamoto wrote the Times front page article titled "The Minister of Finance is about to implement a second round of bailout for banks " in the Bitcoin Genesis blockchain. Some people believe that this sentence is both The description of when the block was generated may also remind people of the importance of an independent monetary system.)

The Times, January 3, 2009, Chancellor on brink of second bailout for banks

However, although Bitcoin has opened the door to the cryptocurrency industry, it is actually the result of a lot of efforts of its predecessors. Just as the design concept of the prototype cryptocurrency influenced the design of Bitcoin, those exchanges before the advent of Bitcoin also left a valuable "legacy" for exchanges in the market today.

In some ways, exchanges and other infrastructure around cryptocurrencies are still struggling to surpass their predecessors.

For the purpose of this article, we will only look at one of the early crypto assets, E-gold . Starting from the era of the consumer Internet and AOL, many enterprising people are looking for an electronic exchange. New opportunities for value.

"Electronic Gold" was created in 1996. Its original idea was to enable people to transfer electronic gold to each other, and the value of electronic gold was endorsed by gold from offline vaults. In 1999, the Financial Times referred to electronic gold as "the only electronic currency that reached a critical mass size on the Internet."

E-gold

The "Electronic Gold" operator is Gold & Silver Reserve, Inc. , which provided only exchange services during the first phase of its establishment (1996-1999) . Beginning in 2000, they redesigned the system to separate settlement and issuance from exchange activity.

Soon, a new "workshop" industry for trading services appeared, and users could exchange between fiat currencies and electronic gold. Many of these sites are still accessible through the Internet Archive. In many ways, such e-gold sites set the tone for early crypto exchanges, especially in terms of strict regulation and criminal review surrounding them.

Indeed, in many ways, the story of electronic gold is the story of one law enforcement action after another. The problems encountered by the cryptocurrency industry today are actually very similar to the previous problems, including anti-fraud, anti-money laundering, and currency transfer licenses.

The most famous operation was the FBI's raid on Gold Age , accusing the exchange of assisting millions of dollars in money laundering. Read the official statement on the raid law enforcement, and compare Mark Zuckerberg's recent inquiry in Congress on the digital currency Libra, and you will find many similarities.

Mark Zuckerberg's inquiry in Congress on Libra

"The advent of new electronic money systems has increased the risk of criminals and potential terrorists using these systems to launder money and transfer funds globally, while avoiding the review of law enforcement agencies and bypassing banking regulations and reports." James E. Finch, Assistant Director of the Bureau of Investigation's Network Enforcement Division, said, "The FBI will continue to work closely with the Department of Justice, federal and international law enforcement partners to actively investigate and prosecute the use of these systems to promote the distribution of child pornography. Anyone, any organization that organizes crime and other financial criminal activities. "

An interesting follow-up story is that the founder of Gold Age later created another digital currency, Liberty Reserve . For a period of time after PayPal blocked Bitcoin transactions, Liberty Reserve actually played the role of the Tether prototype, the ramp channel for Bitcoin. Liberty Reserve eventually closed in 2013, and in 2016 the company's founder, Arthur Bukovsky Bellanchuk, was arrested, convicted and sentenced to 20 years in prison.

Liberty Reserve founder Arthur Bukovsky Bellanchuk under investigation

During the time of Arthur Bukovsky Bellanchuk's conviction, there was a discussion area on the Bitcoin Talk about related topics, and people were concerned about what is different about Bitcoin and whether it will suffer the same fate.

The link between digital currency and crime has been a major source of people's FUD (fear, uncertainty and doubt) emotions. This issue still affects crypto exchanges and the entire industry.

These early exchanges also heralded another challenge: the tension between protocols / digital assets and businesses that let people interact with them. As exchanges become more powerful in today's crypto asset industry, this tension is growing.

But for now, we are turning our attention to the cryptocurrency itself and the earliest Bitcoin exchanges.

Early years

Although Mt. Gox was probably the most iconic name in the early Bitcoin exchanges, it was not the first exchange.

Credit to Bitcoin Market for the first Bitcoin exchange. On January 5, 2010, Bitcoin Talk member dwdolla wrote:

Hello everyone, I am planning to build an exchange. My plan is big, but I still have a lot of work to do. This will be a real market where people can buy and sell Bitcoin to each other. In the next few weeks, I should build a website with a basic framework, please be patient.

A few months later, on March 17, 2010, BitcoinMarket.com went live . At first, they used PayPal as a means to exchange bitcoin and fiat currency. As bitcoin grew, so did the number of scammers. Eventually, PayPal cut off the connection with the website and traders had to find other channels.

In the months following the launch of BitcoinMarket.com, more and more Bitcoin exchanges have appeared. There is no doubt that the most notable of this wave of exchanges is Mt. Gox , which officially opened in July 2010. We will cover it in detail in the next chapter.

In these early years, exchanges were incredibly crude. At that time, they were not concerned about the listing of long-tail alternative coins, nor did they compete on futures services such as derivatives trading. At that time, their biggest concern was not to be hacked, and don't lose users' money.

You know, as of November 6, 2010, the entire bitcoin market value was only $ 1 million. And the Bitcoin price only reached $ 1 on February 9, 2011. This is the early years.

It has grown in 2011, with many new exchanges appearing around the world, allowing bitcoin to convert with local fiat currencies. Bitcoin Brasil was established in March; Bitmarket.eu was established in April.

The biggest issues during this time were payment processes and hacking. In June 2011, PayPal announced that it no longer supports BitcoinMarket.com. A few weeks later, in July 2011, the Biomat exchange lost 17,000 bitcoins.

These problems were not effectively resolved in 2012. Tradehill, one of the largest Bitcoin exchanges in the United States at that time, announced the closure in February of that year. Exchanges such as Bitcoinica and Bitfloor were hacked.

In short, that period was like the "Cambrian" era of the exchange. Most will be drowned in the torrent of history and forgotten. But surviving exchanges such as Bitstamp (founded in 2011) and Coinbase (founded in 2012) will rise in the future.

Of course, Mt. Gox is a topic that cannot be bypassed. The history of early bitcoin exchanges can be said to be defined by Mt.Gox.

V. Mentougou years

Mt. Gox is one of the most iconic and notorious exchanges in the history of cryptocurrency. The story of this exchange is enough to produce a book, and it is still incomplete. The purpose of this section is not to record the complete history of the exchange, but rather to depict its most successful highlight moments and its disastrous turning points.

The Mt. Gox domain was originally registered by Jed McCaleb , and he went on to help create the Ripple and Stellar projects. At first Mt. Gox was only used to trade game cards in the popular game Magic the Gathering , so the name is the acronym for Magic The Gathering Online eXchange. But in July 2010, the exchange transformed into a Bitcoin exchange, and it ended miserably.

Like all bitcoin exchanges in the early stages, Mt. Gox has suffered a lot in dealing with payment issues. In October 2010, PayPal no longer supported it, and they switched to Liberty Reserve's service for a short time (Liberty Reserve was mentioned above) .

Although Jed McCaleb founded the Mt. Gox website, he soon left. In March 2011, the site was sold to Frenchman Mark Karpeles . Over the next three years, Mt.Gox has gradually become the world's largest Bitcoin exchange. During peak times, the exchange processed 70% -80% of Bitcoin transactions on the entire network. Such a huge success also made the subsequent defeat shocking.

On February 24, 2014, Ryan Selkis revealed uneasy rumors from Mt. Gox on his light blog Tumblr section TwoBitIdiot Tumblr. "I received an unverified report from a trusted source, called the Draft Crisis Strategy from the Mt. Gox exchange, outlining the current situation on the exchange. I believe the report is authentic , But I have to verify this document 100% myself. I will do my best to do this. "

The first sentence of the "Draft Crisis Strategy" is: "It may be a bit exaggerated to say this, but at least for most people, this may be the end of Bitcoin." The report later stated that a considerable amount of Bitcoin may have disappeared forever.

Ryan Serkis continued in his post: "This is simply a catastrophe, and I am sorry to share it. I am convinced that this is a survival crisis that many people fear and Bitcoin has suffered. I have personally passed Coinbase sold out all of its own bitcoin … I believe this will be a catastrophic event for bitcoin (as a new currency and as a growing industry) . If this is a scam, then this is a me Feeling an extremely sudden attack. I am worried. I hope this is not true. "

Ryan Serkis is not the last person in the crypto community to lose his faith in Bitcoin. After a week or two, rumors have proven to be true, and the number of lost Bitcoins is even more alarming-the exchange Mt. Gox About 850,000 bitcoins have disappeared, accounting for 7% of the total bitcoin supply, and were worth about $ 473 million at the time.

It can be said that things are actually getting worse. First, it turned out that Mt. Gox had known the fact that it had been hacked eight months before the crisis; second, the actual hacking took place in late 2011. At that time, someone had found a way to access the exchange wallet. In the next two years, as long as Bitcoin enters the Mt. Gox exchange, chances are that it will be stolen and sold. Although these lost bitcoins are close to $ 500 million at the price at the time of the announcement of the Mt. Gox exchange, because they have entered the system and are sold immediately upon entry, the hacker's profit is estimated to be less than this number Much more.

Mt. Gox exchange enters bankruptcy phase. Later, the Frenchman, Mark Carpels, was arrested in Japan for another count of data manipulation, and he spent a year in prison.

There is also a crazy sequel to this dirty story. After the hack was announced, Gox found that 200,000 bitcoins have been in a wallet and have not been touched for three years. As the price of bitcoin soared during this period, today's price of 200,000 bitcoins is higher than the compensation claimed-most unfortunately, creditors at the time demanded dollar-denominated compensation instead of bitcoin. This means that by the day the claim is realized, Mark Carpels can actually get a fortune.

It's a nightmare for someone who has gone through countless lawsuits and death threats. Now, a "civil rehabilitation" plan has been proposed, which will allow the exchange to return from bankruptcy and reallocate assets.

This is the story of Mt. Gox today. The significance of Mt. Gox to our article on the history of exchanges is that it has had a devastating effect on the entire industry.

The aftermath of the event is a bear market for several months, including the closure of the Dark Web Silk Road in October 2013, and the exchange industry has ushered in a new pattern.

Rebirth of altcoins

Do a quick note first. In order to allow this long article to be restrained, we will skip the development of several years and go straight to the topic of the rebirth of alternative coins.

But we are not saying that nothing important has happened in recent years. On the contrary, new exchanges are beginning to appear. On the one hand, they have established a better trading system to avoid making themselves the “next Mt. Gox”; on the other hand, these exchanges have begun to try new strategies, such as bypassing fiat trading completely and focusing on currency trading.

For the sake of narrative, we will focus on some key events, such as the birth of Ethereum, the emergence of a new round of altcoin, and the "Initial Token Issuance" (ICO) around the ERC-20 token standard. These events All have changed the practice of the exchange, and even the entire industry.

When we have discussed here, it is necessary to explain that when we look at Ethereum, we must put it in a broad context. This background is not just the impact of ICOs on exchanges, but also the new creative space that Ethereum brings to the entire industry.

On the one hand, Bitcoin is an open, license-free protocol that allows people to transfer value in a digital native way, while solving the double spend problem.

On the other hand, the birth of Bitcoin has a clear political tendency. Because from the beginning, bitcoin represented at least part of the dissatisfaction of liberals with the modern monetary system. You will see this in the architecture and design decisions of the Bitcoin system. The most obvious is an unquestionable hard cap of 21 million bitcoin, and a permanent write in the genesis block "On January 3, 2009, the UK Chancellor of the Exchequer is in the process of implementing the second round of emergency bank assistance. "The Edge of the Times" headline.

Of course, Bitcoin is an open network, and anyone using Bitcoin does not need any special beliefs. Soon after, developers interested in the underlying technology started experimenting with it to build other things.

Some developers have discovered that Bitcoin has a lot of restrictions, so they decided to start a new stove. One of the most well-known projects is Ethereum.

Ethereum has brought a lot of progress. Its core idea involves not only value exchange, but also the programmability of value exchange. So shortly after the birth of Ethereum, it attracted a group of potential disruptors. If Bitcoin attracts a group of people who want to disrupt the existing currency system, Ethereum is like a beacon for those who are eager to cross the once disruptive but increasingly monopoly Web 2.0.

It can be analyzed from two aspects. First, when the profit needs of Web 2.0 owners exceed the needs of platform users, Web 2.0 will be damaged; second, tokenization will eliminate the distinction between owners and users, and it will make all users become owner.

Of course, the challenge is mainly how to overcome network effects, otherwise it will be difficult to beat the existing big platforms. Tokens provide an answer. In an ordinary network, since the value of the network is limited to a small number of participants, its value accumulates slowly. Tokens will provide additional incentives for early network participants, thereby accelerating the popularity of the network.

Of course, this is just a theory.

In fact, the ERC-20 token is not famous for its support for network construction. It is famous because it is fundamentally simplified, or it accelerates global financing across borders in a pipelined manner.

With the vigorous development of the initial token issuance, the funds raised through the token quickly surpassed the traditional seed round of venture capital. Those with inadequate qualifications, or those deemed to be unfit to participate in technology investment, suddenly discovered that they could double the amount of coins they invested in a new agreement within a day.

There are many factors that cause the outbreak of ICO. There is actually a lot to write here, but the main purpose of this article is to study cryptocurrency exchanges. If every crypto age is represented by a typical exchange, then there is no doubt that during the outbreak of the ICO in 2017, the most representative cryptocurrency exchange was Binance .

Some people say that Binance was "rich overnight", but in fact, they worked patiently for many years before they succeeded. "Get rich overnight" is just a legend in the myth of cryptocurrency.

On June 14, 2017, Binance founder Zhao Changpeng heard about ICO by chance while attending a dinner.

Three days later, he had a white paper in Chinese and English; nine days later, the project's initial token offering was launched. One week later, Binance's ICO financing ended, and Binance raised $ 15 million.

Behind such a short timeline, there is actually a deeper story. You know, Zhao Changpeng and his team have many years of working experience in the field of cryptocurrency exchanges. In fact, the trading system and matching engine that Binance will launch are already the fifth generation of trading systems they have built. Prior to Binance, Zhao Changpeng and his team had been building white-label crypto infrastructure for many exchanges, which led them to focus on issues such as compliance and liquidity.

The point is that when Binance's ICO is completed, they can execute it immediately. In fact, they did.

It took Binance only five months to become the # 1 cryptocurrency exchange in the world by trading volume, and later broke new milestones one after another. After three months, the number of Binance users exceeded 120,000, and then in three months it exceeded 1 million users. After another week, the number of users exceeded 2 million. From a revenue perspective, Binance is the fastest growing startup in history.

On the one hand, the rapid growth of Binance is due to the hard work of Zhao Changpeng and his team for many years. They have rich experience in the cryptocurrency industry and traditional exchange infrastructure, and the team's execution ability is much higher than the market average. .

On the other hand, this also reflects the incredible madness of the ICO boom. In the short period of one year from mid-2017 to mid-2018, the key point of competition for cryptocurrency exchanges is what long-tail ICO assets you have listed.

Binance founder Zhao Changpeng has appeared on the cover of Forbes Magazine due to the rapid development of Binance

Because Binance can quickly take the leading role in the industry, they can provide the most liquid tokens, which in turn makes Binance the most ideal place to list tokens. In this way, the company has established a strong self-reinforcing feedback loop and network effects, further consolidating its leading position in the cryptocurrency field.

Not only that, Binance did introduce some innovations. These innovations have also been imitated by many exchanges, and the most notable among them is the native platform coin BNB they launched. BNB provides many benefits for holders. First, the transaction fee paid by BNB will be 50% lower than other methods. Second, as long as you hold a certain size of BNB, you can get more discounts on the rate.

The most interesting thing is that Binance promises to destroy 20% of their quarterly profits by BNB. This is an embedded mechanism designed to reduce the circulation rate and bring positive price thrust to BNB. As of this writing, the company has destroyed more than $ 200 million in BNB-meaning a total value of more than $ 1 billion in profits.

At the same time, we know that the ICO boom did not last long. After a short period of time, people's interest in long-tail tokens disappeared, and the model of the exchange had to reform itself again.

This article focuses on the history of the exchange, not on the analysis of the business model of the exchange. Before discussing the 2018 bear market, we will not elaborate on some of the market's criticisms of the exchange model during the ICO boom.

In just a few months, amazing and dangerous incentive configurations have been created, especially a tripartite incentive system between token creators, token ranking sites and exchanges. In short, everyone has the motivation to heat everything up: altcoin developers want to profit from the liquidity of the exchange, and profit from the traffic of the token ranking website (which in turn brings more liquidity) ; and The token ranking website hopes that the market will remain hot to attract traffic in order to sell advertisements; and in order to be able to charge higher listing fees from the project, the exchange wants to show the highest transaction volume on the token ranking website.

If you want to learn more about this history, you can read " The Dark Underbelly Of Cryptocurrency Markets " by Nic Carter . (Lianwen was translated and recommended in September last year, the original text can be found)

For the purposes of this article, the important issue is the business model of the exchange. In general, this is more like a historical accident, and the success of the exchange during the initial token issuance was not due to some of its core capabilities. In order to survive and prosper, exchanges have to reinvent themselves, and they do exactly that.

Seven, contemporary times

As we enter the present age, we will find that the boundaries of these periods become increasingly blurred. The only common point that exists is that it involves the exchange business. It is almost impossible to survive if you stay still and rely only on a business model that was feasible three months ago.

From the end of the ICO market to the beginning of the bear market in 9-12 months, we skipped it. If cryptocurrency exchanges can rely on the huge listing fees supported by hype to support their survival, and can rely on traders looking for the next soaring opportunity to support their survival, then the meaning of a bear market will be completely different.

The enthusiasm for altcoins disappeared, the ICO died, and liquidity evaporated. For many cryptocurrency exchanges, this means that the days of easy money are gone.

However, Arthur Hayes , head of the BitMEX exchange, is not worried about these changes.

Arthur Hayes

Arthur Hayes is a person who has stepped out of the traditional financial world. He has always been less interested in spot trading of long-tail assets, and more interested in futures and other derivatives that make the mainstream market more efficient . It is also more interesting for those traders) .

These products have many advantages, one of which is to allow good traders to make money in both bull and bear markets. Moreover, in the context of the crypto asset market, there are many other new possibilities.

If 2017 is the “Year of Binance”, then 2018 is the “Year of BitMEX”, and they launched a peculiar product like perpetual swaps -a truly never-expiring futures. BitMEX also takes a different approach to leveraged trading. Although they are not the only participants in the field that allow leveraged trading, BitMEX fundamentally expands trading opportunities and allows traders to use leverage up to 100 times.

How is it today? Bitcoin has climbed again since April 2019. Regardless of the hot ICO of that year, the market today is significantly better than in the second half of 2018.

We believe that there are at least four main trends now shaping the business model of exchanges :

Derivatives

BitMEX is not the only exchange focusing on derivatives. Binance has also recently been involved, providing 125x leveraged trading services-which is 100x higher than BitMEX's famous.

However, what is more interesting is the role played by derivatives in introducing a new round of institutional investors. Recently, it was reported that the reason why the US Commodity Futures Trading Commission gave CME Group 's bitcoin futures a green light is that they believe that if institutions can short bitcoin, they can puncture the dangerous and overheating bubble and help the industry gradually Mature, ready for mainstream funding.

However, CME Group is not the only territory in this change. New York Stock Exchange's parent company Intercontinental Exchange Group 's newly established Bakkt has also recently launched physical settlement of Bitcoin futures contract products. Cash-settled bitcoin futures are settled at the equivalent US dollar value, while physical-settled bitcoin futures are the actual bitcoin changer, which may generate more positive demand momentum.

When Bakkt was officially launched, the performance was not surprising, but its trading volume has soared in the past few weeks.

Bloomberg recently published an article on the important impact of futures on the crypto market, titled " Futures Are Pulling Cryptocurrencies Out Of The Dark ." According to the article, futures trading has grown from close to zero to 50% of spot trading … it can effectively reduce volatility, increase liquidity, expand the investor base, improve portfolio management and ease regulatory concerns.

As more and more traditional investors enter this field, we expect more and more activities to copy financial instruments in the mainstream world.

2. Native token, IEO, native chain

Although the initial token issuance has gradually cooled and people's attention has turned to BitMEX and its permanent swap products, Binance is still innovating. During the market downturn, Binance's platform coin BNB is still one of the best performing assets in the market.

In January 2019, Binance announced the launch of Launchpad , a platform for token issuance and distribution. They replaced IICO (Initial Exchange Offering) with ICO.

Of course, there are some differences between IEO and ICO: first, the number of people who can participate in IEO is limited; second, each IEO participant can only get limited token allocation. In addition, people are betting for an initial token issuance, and the bet is that its tokens will land on some exchanges in the future, while IEO is different because it has built-in liquidity due to the trading platform it relies on.

At first, people were also worried that IEO would replay games with initial coin offerings. After Binance launched Launchpad, other competing exchanges also raced to launch their own IEO products. However, a few months later it was discovered that IEO did not repeat the irrational fanaticism of ICOs. Because different design decisions seem to limit the impact of IEO, and if you look at the entire crypto market, different IEO projects will perform differently. As trading models continue to change, exchanges do use IEO-type issuance to give some new tokens a tilt, but IEO is only part of an exchange's larger strategy.

Finally, another Binance innovation also deserves attention. They launched Binance Chain , a native blockchain , in February this year. The first use case of Binance Chain is Binance DEX , which also brings us to today's third exchange trend-decentralized exchanges.

3. Decentralized exchange

The entire crypto industry is built on the idea of ​​decentralization, in other words, getting rid of centralized control and intermediation, and resisting censorship, openness, and permission-free access. But it is quite ironic that the exchange, the most powerful institution in the crypto industry and the company with which most users have to interact, is the most traditional and highly centralized entity.

So, the Decentralized Exchange (DEX) is here.

Strictly speaking, decentralized exchanges are not a "new invention." Bancor has provided trading services similar to decentralized exchanges since 2017.They raised the largest amount of funds at the time: 153 million US dollars through the initial token issue.

At the end of 2018 and throughout 2019, we saw significant progress in decentralized exchanges. First, decentralized trading protocols such as 0x have become more and more mature. The 0x protocol specifically supports the creation of decentralized exchanges. Second, in some ways it can be said that it is more important that we see decentralization from Uniswap. A breakout of the exchange.

Uniswap was a project that stood out from the " Ethereum Hackathon " event and quickly became the most commonly used decentralized exchange on the market, even surpassing Bancor. The biggest difference of Uniswap is that it does not require native tokens to use. And other systems, such as Bancor and other decentralized exchanges built with the 0x protocol, need to use the tokens inherent in the protocol. Although this method is theoretically helpful for governance and other issues, it will eventually generate some new friction. . It may be worth the friction in some cases in some cases, but now the industry has understood that Uniswap's frictionless, token-free model is even more exciting.

4. The compliance gap

The regulation of the crypto industry is fraught with chaos and complexity, sometimes in the same jurisdiction. Cryptocurrency exchanges have learned the guerrilla approach from an early age, and they are constantly migrating to jurisdictions where the regulatory regime is more favorable (or clearer) .

Take Binance as an example. They first established in Hong Kong, China, then moved to Japan and Taiwan, and finally settled in Malta.

There is a clear compliance gap in today's market. On the one hand, in order to circumvent regulatory scrutiny and continue to innovate products and services to stay competitive, they will choose not to serve US users. For example, the recent cryptocurrency exchange "P Network" Poloniex has been separated from Circle to operate independently. This is to escape the United States and focus on innovation in the Asian market.

On the other hand, some exchanges have chosen to work hard to comply with the highly regulated U.S. market, such as Gemini , which advertised in New York City this year, calling for "the crypto industry needs rules", hoping to build compliance Into their brand positioning.

Of course, compliance is not enough for advertising. In 2019, in terms of industry self-regulation, some professional organizations are trying to eliminate bad behaviors such as trading exchange reversals on exchanges, which will artificially drive up transaction volumes to increase listing fees. The iconic behavior comes from Bitwise 's testimony submitted to the US Securities and Exchange Commission ( as part of their ETF fund launch proposal) , in which they claim that approximately 95% of Bitcoin's trading volume is false .

Note: In response to increasingly popular traffic counterfeiting and exaggerated exchange traffic, Nomics has developed an Exchange Transparency Ratings

Summary

The history of cryptocurrency exchanges has no end. In fact, it can be clearly seen from the various trends shaping today's crypto market that exchanges will increasingly use various strategies and its iterative speed will become faster and faster.

Obviously, the story of the exchange is like a powerful shot of the entire cryptocurrency industry, which can be used to understand the overall state of the crypto industry. Cryptocurrency exchanges are both a trend receiver responding to consumer demand and a maker of industry development trends. They are shaping the next step in this emerging market through a variety of new products and services. Exchanges are also a barometer of the regulatory environment. Some exchanges are very capable and can lobby the government to obtain regulatory policies that are beneficial to them.

Competition between exchanges is also the most fierce in the entire cryptocurrency industry, and this situation will be difficult to change in the next few years. So, move a small bench, hold popcorn, and continue the "good show" together.