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Emerging Crypto Exchanges Aim to Disrupt Amidst Traditional Platform Woes

As established crypto exchanges grapple with regulatory challenges, new players eye opportunities in this unsettled landscape.

Bitcoin logo and chart
Bitcoin logo and chart

Decentralized Exchanges Gain Traction

Crypto exchanges in the U.S. are under increasing scrutiny, following the spectacular downfall of FTX and regulatory actions by the Securities and Exchange Commission (SEC) against Binance and Coinbase. In the wake of these events, numerous emerging crypto exchanges are poised to leverage the incumbents' missteps, equipped with innovative strategies once deemed uncompetitive. These new players understand the regulatory framework and the potential to unify a centralized user experience with a robust DeFi ecosystem, according to Franklin Bi, a partner at Pantera Capital.

Hybrid exchanges, user-friendly decentralized exchanges (DEXs), and institutional-only marketplaces are gaining popularity, while retail-focused centralized exchanges are currently less favored. Given the difficulties with U.S. registration and insufficient volumes, centralized exchange startups may face growth limitations, potentially discouraging venture capital interest, notes Michael Safai, co-founder of Dexterity Capital. Nevertheless, Thomas Klocanas, general partner and head of venture at BlockTower Capital, argues that the exchange landscape is more ripe for disruption than it has been in years, for investors and founders with the right risk tolerance.

Investing in Decentralized Exchanges: A Rising Phenomenon

Post FTX's collapse, investors and customers have flocked to DEXs. Approximately $144 million across 43 deals have been invested into DEX startups since November 2022, as per data from The Block Research. Moreover, investors are exploring innovative primitives that push the boundaries of what DEXs can offer, specifically in terms of luring institutional players. An emerging favorite is the hybrid exchange model that integrates centralized finance (CeFi) and decentralized finance (DeFi), setting the stage for a more decentralized financial system.

Focus Shifts to Institutional Market

Emerging exchanges like EDX, Zodia Markets, CrossX, Archax, and the controversial Prometheum are heavily focused on the institutional market. Simon Barnby, CMO at Archax, believes that "when the institutional wall of money gets involved, it's a game-changer for the space." BloxCross, initially focused on retail customers, has pivoted to also serving institutional clients, according to Keith Bliss, global head of markets and strategy at BloxCross.

Challenges and Opportunities for New Crypto Exchanges

Breaking into the institutional market has been a challenging task for crypto exchanges. Despite the difficulties, startups like Zodia Markets, backed by Standard Chartered, aim to mature the market with their unique solutions. However, startup founders are advised to find a specific niche or pivot to stay competitive in this tough market, suggests Julia Zhou, partner at trading group AlphaLab Capital.

The current turmoil within leading global exchanges may offer an opportunity for regional-focused exchanges to rise. Alex Harper, CEO and co-founder of Australian exchange Swyftx, states that "any new challengers will need a serious point of differentiation." Market conditions remain a critical consideration for all exchanges, big or small. The launch of new exchanges is feasible, but they must be cognizant of the challenges posed by a bear market, warns Gleb Dudka, a principal at venture firm Greenfield.