Centralized exchanges are subject to several challenges when they are first starting out. Liquidity and customer acquisition are two common areas they usually run into problems with. The reason for this is that at an early stage of development for an exchange, both liquidity and customers do not exist/or are low in numbers. In such a competitive market, they are difficult to grow without support. If an exchange cannot generate high liquidity on their platform, they are more likely to experience high volatility. Traders will be less inclined to trade on such platforms if they see low-trading volumes, therefore customer acquisition will remain a challenge that exchanges need to overcome in order to grow.

This article will outline how centralized exchanges can obtain support in these two important areas upon joining the DAEX ecosystem.

Liquidity and Customer Acquisition

Centralized exchanges use their own software mechanisms to process both trade matching and clearing. First, trades are matched by connecting buy and sell orders, then the exchange proceeds with clearing by updating the accounts and exchange wallet information to ensure that the buyer/seller can send/receive the desired amount. The trade matching mechanism is a software system developed by a technical department, and a financial department manages the clearing process.

The challenge for a new exchange is to generate enough liquidity at an early stage, because this requires a customer base that are placing buy and sell orders to meet desired liquidity levels.

H ow can a newly established exchange already have a customer base that does not yet exist?

If a newly established exchange is part of the DAEX ecosystem, all existing traders who have access to the DAEX Wallet (by completing the DAEX registration and KYC process) will be able to access that exchange and any other exchange in the ecosystem seamlessly. Currently, if a trader wants to use multiple exchanges, they must go through a user registration and KYC process for each exchange independently — this is tiresome and inefficient for traders. Then to access and use the services of each exchange, they must log into the websites or applications separately. Therefore, by utilizing the DAEX Wallet as a link, the customer acquisition process for exchanges will be more efficient than what exists today. Traders will also be able to earn DAX token rewards, as they will take part in the clearing ecosystem.

This will not guarantee liquidity for new exchanges in the ecosystem (as other factors are involved), but it will certainly make it easier for exchanges to receive new customers that can generate trading volume. Essentially any trader in the ecosystem is a potential customer for any exchange in the ecosystem.