To use a ‘white-label exchange or not,’ that is the question. The first thing anyone starting this process will soon realize is that creating an exchange from scratch is a long and complicated process, with a lot of unforgiving aspects.
For those who are not familiar with the concept, white-label is a business model in which a product or service developed by a certain company can be resold by other companies or individuals as if it was created and developed by them. This is, in fact, a very common business practice.
By using a white-label solution, an insane amount of pain can be saved, not to mention money. But there are some caveats to keep in mind when using a white-label crypto exchange.
Firstly, we have the viability and security aspects, which often are tricky areas to self-verify. In fact, security is an important detail covered in an open-source software solution, as it has been out in the open and fully battle-tested, which most of the time makes this the smarter choice.
This article will not go into every exchange white label solution out there, but will mostly focus on the positive and negative aspects of this kind of software. Still, by doing your own research and testing out the options for yourself, it is possible (and the best way) to know if the solution is right for your situation.
The Positives
If you lack a tech team, this is the best way to get started. It can save huge headaches in the development phases and is a sure way to know your exchange is secure. In fact, by using a tried and tested system, you can avoid hacks, among other benefits. What might seem costly to begin will actually save you bigger problems in the long term.
Adrian Pollard, the co-founder of bitHolla, an exchange solutions provider stated that current solutions promise two things: “First, exchange software out there can be complicated to use and won’t include liquidity within the solution. This is the number one barrier to entry today because to get an easy to use solution that you can run yourself with liquid markets you’d easily pay $100,000s of dollars.”
Pollard further goes on to say that “Second, it is difficult to find open-source exchange software because it does not make sense for providers to give away the software for free. HollaEx Kit is different in that it is open and free as long as you run-it-yourself. All the costs are value-added services such as extra features.”
In addition, most exchange solutions have a “pay as you go” option that will make the experience of starting your exchange much less stressful. Quite often, fees are extracted as you gain transaction volumes, so you will not pay for resources you do not need.
Similarly, and considering that you are ultimately getting into the business of being a quasi-bank (or a crypto bank, so to speak), operating an exchange is a guaranteed future-proofed business that will grow as more adoption of crypto spreads around the world.
As you are using an exchange service, your business will always stay on the cutting edge because you are outsourcing the technology to experts, and therefore will always receive the latest and most useful updates to keep your business in the crypto/blockchain loop. For example, as new popular coins come around, you will not have to spend time integrating the coin into your exchange.
A good white-label solution will have a liquidity solution that allows your markets on your exchange to be full. This means no empty order book and flat charts, and also that customers will have confidence in your exchange.
The Drawbacks
Some white-label solutions can be costly. If you are not going with an open-source solution you may find the cost hard to justify. In addition, some solutions are overly complicated and difficult to manage.
What may look pretty on the outside with the popular UI features, might actually be lacking when it comes to the admin dashboard features, for example. With this in mind, it is always a good idea to try before you buy.
Depending on the chosen solution, and because you may be dependent on the providers, customizations can be challenging, without a strong tech team making any changes can be a long and messy process, as some solutions do have limited editable features.
Often overlooked, server and deployment costs are one of those things in the background, but obviously essential for the exchange to exist. Cloud exchanges are often the solution, even if this means you are outsourcing your exchange and management outside your control.
Regardless of what other testimonials may say about a certain white-label solution, something you will want to avoid is poor security and code review, as that may have huge implications in the business should any problem arise. To solve this issue, the smartest solution is to hire an external security expert to perform all necessary verifications, to give you and your users absolute peace of mind.
In conclusion, developing a crypto exchange from the ground up is an absolutely cyclopic task, so using a white-label solution, which is already developed and used by others, is way easier. However, none of these options should be used and trusted blindly, as problems can be around the corner and destroy a business in a flash.
Author: Luke Fitzpatrick
