We, a small group of investors, decided to create a cryptocurrency exchange following the market trend. I think it was a good idea, but along the way we made many mistakes that affected the business and ultimately led to failure.
Given the detailed description of internal processes, I will not advertise the name of the crypto exchange.
We have gained good experience, and perhaps our mistakes will help you avoid them if you still decide to launch this difficult project.
Brilliant idea
We thought about creating a crypto exchange, but we understood that the project should be different from others. This would allow us to stand out from the competition and develop it more easily on the market.
We brainstormed with the team and decided that we could offer users the opportunity to earn money on the exchange with us.
The idea was to create our own token, which would be provided by the company's profit. We decided to create an entire ecosystem around it, which would allow users to earn on exchange and receive rewards by completing simple tasks.
To prevent the possibility of cheating, we added a time for blocking tokens before their withdrawal and gradual unblocking.
We decided to concentrate development only on spot trading, but with an emphasis on the development of marketing tools to promote our project.
Development and first problems
We started developing the crypto exchange with enthusiasm, but already at the first stages we encountered problems.
The first stone we stumbled upon was the color scheme. Everyone wanted to express their opinion, and this eventually led to constant edits. We spent about a month agreeing on truly unnecessary things.
Now I think that our attention and enthusiasm at that time should have been spent on a more in-depth marketing campaign and market analysis. But we were still arguing about which color to leave for the button - purple or blue.
The design was completed in 5 weeks and the development process began, which lasted about 3 months.
During this period, we began to deal with legal issues and decided to register a company in the Virgin Islands. We got a personal agent who helped us resolve all legal issues for $8,000.
We chose the Virgin Islands because they are very friendly to crypto businesses and have low maintenance costs. It would cost us $3,000 annually.
In the process of developing the crypto exchange, we realized that legal issues are not the most expensive expenses. Rent servers for cryptocurrency the node required huge costs.
Our second mistake was that we decided to integrate a huge number of cryptocurrencies using our own nodes . We didn’t understand it then, but now I can say with confidence that it’s a very expensive pleasure.
Considering that we chose AWS servers, the price tag for monthly expenses grew exponentially. We asked the guys to estimate the projected expenses if we integrate the TOP-200 cryptocurrencies, and the figure we got was $96,000 per year.
My disappointment knew no bounds. This was significantly beyond our capabilities.
After lengthy consultations with the development team, it was decided to slightly change the technical structure and use an external cryptocurrency provider. node . Thus, the costs for servers were reduced to $12,000 per year.
It was also decided to add cryptocurrencies gradually, which gave us space to develop step by step.
Launch and big problems
After 4 months of active development we entered the market.
First of all, we decided to test the project on a small number of users and get feedback for possible improvements.
Over the course of a month, we had about 1,100 registered users who found a large number of minor bugs. It was frustrating, but encouraging that no critical vulnerabilities were found.
At first glance, everything was going well. Our marketing campaign was working. We were getting users for $0.15 and converting them into active participants. The conversion rate was 5%, and that was fine with us.
As we planned, users received a native exchange token for each registration. When conducting internal exchanges, we awarded them tokens for activity.
Marketing bonuses for reposts on social networks and additional bonuses for invited friends have been added.
According to our strategy, the token was blocked for one month, after which the user could gradually withdraw the earned funds over the course of three months.
We saw interest in our exchange, and most importantly, we saw that our strategy was producing results. Users came back and recommended us to their friends.
After a month in test mode, we decided to expand the marketing campaign a little and attract more users to test the technical and financial scaling of the platform.
This is where we encountered very serious problems that began to stifle our business.
First, the cost of attracting users began to rise. We used cheap channels, but gradually had to switch to more expensive campaigns. As a result, the cost of one registered user increased from 3 to 6 dollars.
We had to decide something: either reduce expenses or change the company's financial policy.
On the other hand, more serious technical problems arose. Our exchange was subjected to an active DDoS attack.
As soon as we solved a problem on one side, a couple of days later new ones would arise on the other.
It was some kind of endless process or a game of cat and mouse.
Over the course of a month, we built a new “strong” architecture that could operate stably under conditions of active DDoS attacks.
When you become visible in a small region, be sure that there will be those who want to sink your business. You need to be prepared for this.
For a month we solved marketing and technical difficulties.
At the same time, a period began when earned tokens began to be unlocked for withdrawal by users.
We understood that users would be tempted to withdraw their earnings, thereby putting pressure on the price. So we prepared a small market maker that gradually pushed the price up.
Our bet was that users would hold funds to increase profits. But we were very wrong.
As soon as it was time to unlock the tokens, we saw a massive withdrawal of funds.
This shocked us a bit. Nobody wanted to keep the coins, everyone wanted to get them off the exchange.
We knew there was a big problem brewing. We had to either come up with something or prepare for big losses.
The end of our business
The first thing we did was offer users a staking feature with 40% APY.
Maybe not the best solution, but we didn't have much time to develop complex steps to retain users.
But this move gave us a good result, the withdrawal amounts decreased significantly, and users began to store coins.
We leveled the playing field and began to grow gradually. Although it was a victory in the battle, we lost the war.
The more users we attracted, the more we saw that this marketing strategy was a drain on our huge expenses to provide liquidity to our coin.
Over the course of 6 months, we grew our user base and gradually increased our trading turnover.
We started making some good money, but we had to pay off over $1,000 in interest every day, and that number was growing every day.
To balance expenses and income, we started lowering the staking percentage from 40% to 10 % APY. This is the financially justified percentage that we could actually hold for a long time.
But users didn't like it very much. The conclusions began to intensify and put more and more pressure on our economy.
Gradually we realized that we could no longer invest in marketing. We were gradually fading away. The pressure on finances was increasing (expenses were consistently high, and income was gradually falling).