High-Frequency Market Maker For Crypto Assets Compares Binance And Coinbase Business Models
Ricky Li, the Co-Founder at Altonomy, a digital asset trading, advisory, and management firm, recently shared his views and insights regarding the business operations of the leading cryptocurrency exchanges.
Ricky, who earned his Ph.D. in computer graphics and data compression from Rensselaer Polytechnic Institute, has extensive experience in both the nascent crypto assets market and the traditional financial securities industry. He has also developed a unique understanding of institutional investors’ barriers to entry into the emerging digital asset class.
Having worked previously as Manager of Research and Product at the CME Group and as Senior Manager at “Big Four” professional services firm PwC, Li has been able to leverage his vast experience to help institutional clients better understand how to sensibly invest in crypto assets.
Coinbase Vs. Binance
BitcoinExchangeGuide: Could you compare and contrast the different business strategies used by Coinbase and Binance? As two of the leading crypto platforms, what do you think are the main services they can offer to cryptocurrency traders in the coming years?
As we discussed, in a few areas their approach differs drastically:
· Custody: Binance aims to solve the issue of asset custody by giving the right back to its user through the blockchain. Binance’s decentralized exchange running on the Binance Chain, for example, is experimenting with no central custody of funds as a potential solution to asset safety.
Coinbase, on the other hand, leans towards more traditional methods of custody, investing heavily to improve cybersecurity measures, cold storage procedures, and multi-signature mechanisms to ensure asset safety.
While Binance seems to provide the better solution superficially because the exchange will never hold assets on investors’ behalf. This, as its DEX implementation, is not necessarily mature enough to ensure traditional institution-grade asset custody at this time.
· Listings: Binance is known for listing the most cutting-edge and innovative altcoin projects. The active trading and liquidity on those altcoin pairs feeds into the liquidity of major coins and brings up the exchange’s overall liquidity, as evidenced over the past year [is there a stat we could cite here?]not really. They have a strong cryptocurrency research team that evaluates a wide range of crypto projects, ensuring that only altcoins that meet their standards make it to listing.
Interestingly Coinbase is taking a completely different approach. I had the chance to raise this question with Brian Armstrong, their CEO, last week during Blockchain Week NYC. His response was unique – instead of being the judge and authority to determine listings, Coinbase prefers to operate an “Amazon-esque” model that provides all the possible altcoins assets its users can trade, while only filtering out the projects vetted and confirmed to be scams.
· Currency: Binance focuses more on crypto-to-crypto trading pairs, while Coinbase focuses more on crypto-to-fiat trading – having started out as a crypto-to-fiat broker.
BitcoinExchangeGuide: Where do you see Coinbase and other leading exchanges (according to your assessment) in terms of market valuation and the range of services they would be able to offer in the next 5-10 years?
Ricky Li: Coinbase has touched many aspects of security servicing already. Custody, brokerage, and index funds are among their most popular current offerings. I do see its (over-the-counter) OTC agency trading business growing, given the growing trust that investors are placing in the Coinbase brand and its underlying infrastructure. Other than that, we see upside for more retail-focused products like wallets and payment mechanisms. Cloud mining and mining pool are also possible.
BitcoinExchangeGuide: Do you think there should be strict evaluation criteria when exchanges list new crypto assets? Delisting digital assets like Bitcoin SV, recently by Blockchain.com and also Binance tells us there is some level of accountability in this space. Thoughts?
Ricky Li: Yes, exchanges must carry the responsibility of ensuring the products they list are of best interest to their users. Of course, the criteria differs vastly between different exchanges like GitHub code audit, Twitter followers, Telegram participates, overall token market cap, but accountability is a fundamental part of exchanges’ role within the financial services ecosystem.
BitcoinExchangeGuide: Please explain, in detail, the services you offer and how they are relevant to the crypto space.
Ricky Li: “Electronic Execution: Altonomy provides electronic execution to help investment firms, mining companies, and exchanges enter and exit positions as an outsourced execution desk.
· Market Making: As a high-frequency market-maker, we work with cryptocurrency spot and derivative exchanges to provide liquidity around various tokens and derivatives contracts.
· Advisory: Our advisory business counsels aspiring token issuers looking to get listed on exchanges. Altonomy provides insights that help accelerate listing review processes and fields inquiries from these exchanges regarding the prospective token’s depth volume, its relativity to similar coins offerings; the risk tolerance among its target audience; as well as general market sentiment.
· Fund Management: Altonomy also operates a US-registered and fully-regulated private crypto index hedge fund – Taurus – that allows institutions to diversify their allocation to the crypto asset class while reducing risk and capturing crypto-market beta.”