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Starting White Label Cryptocurrency Exchange

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In the last decade, the popularity of white label exchange software in the fintech industry has grown considerably. However, the demand for this type of service has also given rise to a number of myths, ranging from relatively harmless to downright malicious. We believe that white label exchange solutions and products represent the future of fintech as with their help, new and emerging businesses can create necessary technological platforms for their projects while saving time and resources. White label crypto exchange is a software solution that allows you to launch your own trading platform quickly and with a relatively small budget. All you need to do is find a vendor to build and support the solution, and you can concentrate your efforts on marketing and advertising.

In this publication, we will describe in detail how to launch a cryptocurrency exchange with a white label solution, what you need for that, what you should worry about beforehand, and what doubts you should leave behind. Most of the sections in this article have links that discuss aspects of running white label crypto exchange solutions in more detail. Feel free to follow these links and ask any additional questions you may have.

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Decide what kind of white label solution you need

First, let's understand the difference between a white label software license and a white label business license.

White label business license essentially provides the user with a ready-to-go business enterprise, including the technology (software) component.

In other words, in the first case, to start a white label exchange, you only need start-up capital to pay for the license. In the case of white label software, you only get your hands on the technology. As a vendor of white label cryptocurrency exchange software, we will be discussing the second model.

White label (or turnkey) software is delivered to customers unbranded. It is designed for users who already have a business concept or a functioning business that needs a technological foundation to perform the necessary operations and provide end customers with a specific set of functions.

Find a business niche and target audience

Even before you start looking for a technology partner, you need to decide exactly what your business will look like and who it will target. The processes here are not very different from the case when you will be developing the software framework in-house.

Explore how to set up a crypto exchange with a wholesome marketing strategy.

You need to understand the challenges, needs, pains, and consumer habits of the group of traders you want to attract. As a rule, informed clients pay attention to security, legislation, liquidity, volume, and the availability of trading indicators and signals. From a technical point of view, to prepare your business to reach the widest possible audience, you should create a white label cryptocurrency exchange with extensive UX customization, functionality, and administering capabilities.

You need to understand the challenges, needs, pains, and consumer habits of the group of traders you want to attract. As a rule, informed clients pay attention to security, legislation, liquidity, volume, and the availability of trading indicators and signals. From a technical point of view, to prepare your business to reach the widest possible audience, you should create a white label cryptocurrency exchange with extensive UX customization, functionality, and administering capabilities.

Choose your regulation

Regulation largely determines how exactly you will run your business, and whether you can start a white label exchange or a brokerage in a specific region. The choice of regulation affects taxation, business models, even the range of trading instruments you can offer your traders. Some countries have completely banned cryptocurrencies, so you cannot, for example, offer clients from China to trade Bitcoins.

The laws regarding crypto-exchanges and cryptocurrencies vary greatly depending on the region and the regulator in place. Given how quickly the industry is developing, legislation in the field of cryptocurrencies can also change almost every month, so it is necessary to constantly monitor the release of any legal documents that relate to this issue in the region of interest to you.

Learn more about crypto business regulation in the European Union, and explore the first-hand experience of adopting crypto legislation.

Establish liquidity management processes

You should also think about how you will provide liquidity for your white label cryptocurrency platform. Liquidity refers to the ability and speed to execute orders to buy or sell Bitcoins or other assets at advantageous prices. And the better the liquidity, the faster traders will be able to execute their orders.

There are two prevalent methods to provide quality liquidity for your crypto exchange.

You should also think about how you will provide liquidity for your white label cryptocurrency platform. Liquidity refers to the ability and speed to execute orders to buy or sell Bitcoins or other assets at advantageous prices. And the better the liquidity, the faster traders will be able to execute their orders.

There are two prevalent methods to provide quality liquidity for your crypto exchange.

Prime of prime is a long-established way. It involves working with an outside vendor that offers Tier 1 liquidity in exchange for appropriate commissions

NBLP method, non-bank liquidity provider method, or pure liquidity aggregation, implies utilizing software (namely, a liquidity aggregator) that allows a crypto exchange to provide the prices collected from different liquidity providers. In this case, there is no need to pay commissions to the Tier 1 provider.

Prime of prime is a long-established way. It involves working with an outside vendor that offers Tier 1 liquidity in exchange for appropriate commissions

NBLP method, non-bank liquidity provider method, or pure liquidity aggregation, implies utilizing software (namely, a liquidity aggregator) that allows a crypto exchange to provide the prices collected from different liquidity providers. In this case, there is no need to pay commissions to the Tier 1 provider.

Explore other advantages that the NBLP method creates.

Comply with KYC and AML protocols

According to various estimates, in 2021 alone, scammers stole more than $21 billion worth of cryptocurrencies. A significant part of this amount is accounted for by hacks of various types. So if you are focused on the regulations of the American, European, and East Asian markets, your platform must not only be secure but also comply with the various practices of countering terrorist financing and money laundering.

So how to start a white label crypto exchange that clients will find safe? To achieve this, you need to set up a business that compiles with the procedures described below.

Read more about how to make your exchange really safe for clients.

KYC (Know Your Client). Every trader on a cryptocurrency exchange must be verified to confirm that he is of legal age and has the right to invest in cryptocurrency. KYC also helps keep track of fraudsters and hackers.

KYT (Know Your Transaction). This procedure requires trading platforms to check users' sources and withdrawal points and to block funds and/or transactions if these sources are marked by regulators as suspicious or under sanctions.

AML (Anti-Money Laundering). In most countries, these are general rules that exchanges must comply with on their own, but in the U.S., an exchange must have a special anti-money laundering officer on staff.

KYC (Know Your Client). Every trader on a cryptocurrency exchange must be verified to confirm that he is of legal age and has the right to invest in cryptocurrency. KYC also helps keep track of fraudsters and hackers.

KYT (Know Your Transaction). This procedure requires trading platforms to check users' sources and withdrawal points and to block funds and/or transactions if these sources are marked by regulators as suspicious or under sanctions.

AML (Anti-Money Laundering). In most countries, these are general rules that exchanges must comply with on their own, but in the U.S., an exchange must have a special anti-money laundering officer on staff.

Find your vendor and stick with them

Once you've set up your business concept, you'll need to find a reliable technology provider. Remember that you are looking for a long-term relationship, so choose carefully. Don't neglect any available methods of checking on your potential partner, and ask any questions you may have.

You need to make sure that the technical potential of the WL solution you are considering matches the growth potential of your business.

You can explore this checklist of factors and patterns we created to look for when communicating with a technology provider. This can be your shield against unreliable and inexperienced vendors.

Common Myths about White Label Software Solutions in Fintech, Dispelled Completely

We also have taken it upon ourselves to debunk the most common misconceptions and prejudices about white label exchange software. Each of the paragraphs below has more detailed substantiation of our theses, so feel free to follow the suggested links.

White label software is worth about as much as a unicorn

No, it’s the opposite that is true. White label crypto exchange solutions and products are designed to cut your expenses while significantly reducing the time to market for your business. In the financial technology industry, the advantage of white label exchange software stands out particularly clearly. Suppose you need to prepare a software foundation for your cryptocurrency exchange. It consists of many very complex components and the development of the most sophisticated, namely the matching engine, can easily turn into a production hell if you decide to start everything from scratch. If we talk about prices, then a single developer with the right background can easily cost you anything between $70,000 and $100,000.

And it's just one component we're talking about. We don't know about unicorns, but it already sounds very expensive. On the contrary, by approaching a reliable supplier for a WL solution, you can save yourself a whole world of headaches.

On the other hand, we are well aware of what created the myth of exorbitant prices for white label exchange software. Customers, by and large, are primarily interested in the price of a WL solution and product, in fact, this is usually the first question they ask in negotiations with providers. Many vendors are often reckless in quoting the price for the entire software package, which may indeed seem overpriced (but even then, it does not come close to the cost of in-house development). We strongly insist that price should not be the first item on your checklist, although it is certainly an important factor. First, you need to make sure that you and the provider are on the same page, that you are satisfied with the vendor's background, and that you believe they can meet your needs and set up a reliable software foundation for your business. After that, you can start negotiating the price to start a white label exchange or brokerage.

You can read more about why choosing software based on price alone is an ill-advised tactic here.

This is the equivalent of hiring freelancers

This is probably one of the most important aspects you should understand if you are thinking about creating a white label cryptocurrency exchange with the help of a third-party vendor. If you choose an experienced white label software provider, you get a partner who takes full responsibility for the performance of your WL solution, understands how to develop digital products in your domain, and remains compliant to the NDAs for the duration of your collaboration, which in the fintech industry can usually be indefinitely long. Whereas a freelance agency will not necessarily stick to the outlined plan.

In the case of the discussed area of problems, cooperation with a random freelance agency with a high probability will be rather harmful to your business. You may receive at your disposal a solution that will not meet the necessary parameters, or even turn out to be incompetent as time goes by. And here we come to another misconception that must be obliterated.

White label solutions get stale

We suspect that this myth was born directly from the experience of different businesses cooperating with not so reliable WL solution providers. Here again, it's worth remembering how important it is to choose a vendor who specializes in white label software development in the area you are interested in, and not just cobbling together outsourced projects one after another.

Read more about how to make your own cryptocurrency exchange that can evolve with your fintech business.

A provider with an extensive experience never leaves their WL solutions unattended, moreover, they evolve them not only depending on their own analysis of the market situation but can also take into account your suggestions about the features that should be included in a WL solution or excluded from it. To find such a vendor and work with them effectively, you just need to follow some simple rules — do not skip the due diligence phase, no matter how big the name of the company sounds in the marketing documents, and be ready to get invested in the onboarding and installation process to successfully start a WL solution.

White label solutions render businesses faceless

Last but not least. In our opinion, this misconception stems from an inaccurate idea of what a white label software solution actually is. Always remember that white label software itself does not put your business in a rigid framework of how you want to position yourself in the market, what category of customers you are targeting, and it certainly does not build your business plan for you. And it is these components that create your identity as a company.

With a WL solution, you get reliable tools to perform the necessary functions and achieve the required indicators. In our experience, it is the smooth execution of customer requests that is ultimately the best feature that can distinguish you from your competitors. If we talk about superficial, cosmetic customization, it will be difficult to find on today's market a WL solution that will not allow you to set up a trading platform under the corporate identity. The main thing is to make sure that the functions of the software delivery package fully meet the needs of your company and your customers.

Our company has extensive experience in building white label solutions for brokers and crypto-exchanges of various orientation and scale.

Request a personal presentation and we will tell you more about how to make your own cryptocurrency exchange or brokerage.

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