The crypto exchange era is coming to an end. Although the exchanges were once a gateway to everything crypto, some complain that they are now plagued with such challenges as layoffs, regulatory investigations and valuation collapses. There is, however, a more fundamental shift that is turning a chapter in the industry – a change in investor mindset and use cases.
Up until recently, most crypto users focused on trading and winning from their speculative bets. This naturally birthed hundreds of crypto exchanges with a few of them growing into the big beasts in the market. Fueled by customer numbers in the millions and daily trading volume in the billions, as well as charging fees of up to 60 bps per trade, these exchanges quickly became highly valued and they dominated the crypto landscape.
The exchange dominance took a quick turn at the onset of the current bear market. Particularly, the investor mindset has evolved and the use case of crypto has changed from one of speculation to one of investment and sophistication. For instance, one of the speculative strategies has been to keep money in various exchanges to do arbitrage trades on the same assets when the markets become volatile. But, as the industry matured and adjusted to different market climates, liquidity expanded and price-discovery inefficiency was largely wrung out, reducing these arbitrage opportunities. This illustrated the shift of focus from trading to investment management, and the search for safe and sustainable yield taking center stage.
Furthermore, as various crypto coins gain acceptance and utility and more assets are digitized, users are relying on new platforms – known as digital asset management platforms – as their interface with the market. These platforms address the newly emerging investor need to have a one-stop destination to build their wealth while managing their assets by offering comprehensive services. These include structured investment products, custody, lending, trading, payments and interest (including staking and flexi-saving schemes), etc. Along with the outlook that a majority of people will own some form of crypto asset within five years, digital asset management platforms will naturally dominate the markets by addressing the wide array of crypto asset needs, just as their counterparts in the TradFi world do now and how the crypto exchanges once did.
In the long-term, digital asset management platforms will play a bigger role in our society as blockchain becomes the fundamental technology that transforms the global financial network.
Armed with greater efficiency, lower cost and the endless potential to facilitate innovation, blockchain is well positioned to financialize everything, with the assistance of digital asset management platforms. For example, with the increasing presence of stablecoins such as Tether and Circle, we are seeing a growing connection between digital and real-world assets. This convergence is expected to be supercharged with central bank digital currencies (CBDCs) in the future, and it will open the doors to whole other areas that can be digitized, such as real estate or commodities — all realized and handled by digital asset management platforms.
Some may worry about the possibility of TradFi giants leading this change by absorbing or acquiring crypto firms to gain access to blockchain. However, the reality is that they will not be in a position to undertake this themselves, as they are too large and slow to match the speed of innovation that is already happening in blockchain. Rather it will be established crypto-native platforms such as Matrixport that are able to bring Wall Street-like financial offerings in crypto and become the bridge for TradFi investors to access innovative crypto investment products. Matrixport alone provides comprehensive financial services for all types of investors – the way a traditional bank does. But unlike a traditional bank, it does so in a much easier-to-use and intuitive way.
Also, the crypto-native platforms will be able to offer innovative, secure and decentralized services, thereby successfully adapting to a blockchain-anchored financial future. For example, investors will be able to access crypto-native custodian solutions, such as Cactus Custody, that empower them to safely deposit, withdraw and safeguard their assets in the way they prefer. No matter what the assets are – coins, NFTs or others – the blockchain-fueled financial ecosystem by nature will require such solutions that enable users to be the ultimate owner of the assets and not the financial intermediaries, akin to the TradFi ecosystem.
The new era is dawning, and the baton of leadership is being passed from crypto exchanges to digital asset management platforms. The role of digital asset management platforms is expected to expand down the line as they continue to act as gateways between the digital and physical worlds, all built on blockchain.