What is involved in the cost to start a crypto exchange? A short guide for potential investors

How much does it cost to start a cryptocurrency exchange of your own? If we look at different cases of cryptocurrency exchange businesses, we get a variety of values, from discouragingly small to fabulously big. One of the main requirements for launching a successful cryptocurrency exchange business is startup capital, or to be more precise, the correct assessment of the funds that you will need to launch and develop your cryptocurrency exchange. The main difficulty is that calculations can vary depending on the region of operations and the chosen cryptocurrency exchange business model. However, at the very least, it is useful to know the main items of expenditure and possible means of minimizing costs. This will be the focus of this publication.

Software expenses

To get a near-realistic answer to the question of how much does it cost to launch a cryptocurrency exchange, the first thing to do is to solve the software challenge. This is one of the main and most important items of expenditure. The software component is the heart of your own cryptocurrency exchange business and is responsible for ensuring seamless client interaction on the platform. You need a stable matching engine, a trading platform with advanced functionality, a module for liquidity aggregation, and other functions, indispensable for your business. There are several options here, the main ones are buying a ready-made white label solution from a reliable vendor and developing all the features in-house. We cover this topic in more detail in this publication. Let us only point out that in-house development can be very expensive both in terms of money and time. If we talk about the figures, a year of work of the developer with the necessary experience in this area can easily cost you up to $100,000.

There is also supporting software that can help you automate many processes within your crypto exchange business and free your staff's hands for more important things. You may need file hosting services, CRM and project management software, email marketing and internal communication tools. However, one of the most beneficial support tools for your business could be CRM software.

Cost to start a crypto exchange — items of expenditure

Licensing expenses

The issue of licensing of crypto exchange business becomes more and more acute with each passing month. In fact, you need to think about licensing at the same time as choosing the appropriate software solution. Working in a respected jurisdiction immediately raises your reputation to a credible level, allows you to attract more clients and connect all the popular fiat payment systems.

On the other hand, offshore regulators can offer you the simplest possible registration procedure and relatively low rates. However, you may be very limited in your choice of payment gateways to connect to, and professional traders who consider regulation and license level as some of their main criteria may be less willing to become your clients.

How much does it cost to start a cryptocurrency exchange with a proper license? Depending on the region and the regulator issuing the license, this item of expenditure can range from a couple of tens to hundreds of thousands of dollars. You can read more about how regulators in different countries approach cryptocurrency business in this article.

The crypto-exchange also needs to get a positive audit report from one of the big four companies. The cost of services of these companies varies and depends on many factors, ranging from the experience of the company in this kind of audits and finishing with the time of the audit. The cost may range from about $20,000 to $50,000.

Employee expenses

Staffing requirements vary from legislation to legislation, which can greatly affect the cost to build your own cryptocurrency exchange. But the minimum viable staffing that regulators in different countries accept might look as follows:

• director (CEO);
• chief accountant;
• a person responsible for risk management, anti-money laundering and counter-terrorist financing, and internal control (these functions can be distributed among three employees);
• a person responsible for information security.

However, you probably can't do without the support of several other teams of employees, if you expect to attract a large number of clients from different categories and optimize the cost to make a cryptocurrency exchange.

Support team

It is desirable that your support team worked 24/7 or at least 24/5 and was ready to answer the widest range of questions on a variety of topics: account registration, deposit and withdrawal, as well as requests from more advanced clients, which can touch on literally anything.

Trading operations team

The work of this category of specialists, as a rule, is often invisible to the layman's eye, but extremely important. This category of expenditures can greatly affect how much does it cost to launch a cryptocurrency exchange. This group of employees monitors trading infrastructure so that clients orders are executed smoothly, and handles customer complaints that relate to prices of specific assets and disputed transactions. Essentially, the trading operations team makes sure that your clients' successes don't make the liquidity providers unhappy, and looks for opportunities to cover any possible risks.

Compliance team

This category of employees verifies customers and ensures that KYC and AML procedures are followed without fail. Theoretically, this function can be outsourced to a third-party service, but in the early stages of the development of your business you can save some money and manage compliance internally.

Finance operations team

It is good practice to process all customer transactions manually to eliminate any opportunities for fraud. You also need a separate team for this, which will monitor and validate withdrawal transactions initiated by clients.

Technical team

This category of professionals will help you with the deployment of internal networks, DNS registration and binding them to IP addresses, as well as generally maintaining the health of the entire technical infrastructure.

Liquidity expenses

Regardless of which business model you choose, at the start you still have to think about maintaining acceptable levels of liquidity on your exchange. Even if you think you will have enough internal clients to support a pure ECN model, it is advisable to connect a few external providers in the first few months to get a decent-looking market depth.

In the case of working with external suppliers, you will have to open clearing accounts and keep certain amounts on them, which will serve as a guarantee of uninterrupted execution of client trade requests. The volume of funds in clearing accounts will largely depend on the volume of transactions that are executed on your exchange.

Payment solutions expenses

To gain a foothold in a highly competitive market, you need to offer clients fiat payment systems for deposits and withdrawals. If you have a license from a respected regulator, you can also connect to banking solutions or systems like Skrill or Neteller. The cost of contracts with providers of such services will vary greatly depending on the turnover on your exchange and the number of clients.

Marketing expenses

Marketing is the most difficult expenditure item to predict, because it strongly depends on the start-up positions and the strategy of the exchange. For example, if at the very launch you have large institutional clients, then marketing can be put on the back burner, at least for a while. If the exchange will focus on the retail market and competition in the small and medium-sized segment, then you need to prepare for significant costs. As a rule, the marketing strategy for a new exchange is built on experiments to divide campaigns into successful and unsuccessful ones, followed by scaling up the former.

Base calculations example

In this table, we have sought to indicate the possible costs in the main categories that would await a potential investor. Please note that this information is provided for introductory purposes only, and cannot form the basis of a business plan. Please do not forget to do your own research.

Final thoughts

This publication does not cover aspects such as rental of office space, workplace equipment for employees, and others, as they are fairly obvious and the costs in these categories do not vary greatly in all areas of information technology. The main thing is to correlate your business plan with possible expense items and determine which of them are critical for you in the first months, and which can be saved on. Only after that can you start making calculations.