Stablecoin Benefits for Exchanges

Cryptocurrency exchanges provide their users the opportunity to buy crypto with fiat and to cash out of crypto back into fiat. They also act as traditional exchanges offering their users the opportunity to trade currency pairs back and forth between various fiat currencies and digital assets. In fact, it could be argued that the emergence of such exchanges is what propelled cryptocurrency to reach new heights that were not possible in the pre-exchange era. Some of the more prominent exchanges now offer sophisticated digital asset trading and even leveraged trades.

Exchange operators need to interface with the legacy financial system to provide fiat on-ramps and fiat off-ramps. They need to hold bank accounts to serve this function, and due to the irregular nature and volumes of the transactions they make, banks have placed stringent requirements on many exchanges. Many of these exchanges have faced upward battles holding such relationships with banks, and some have even had their bank accounts closed — often at a moment’s notice and with no explanation given — leaving them with interruptions to their services that has often led to customer dissatisfaction and even mistrust.

It is also a requirement in most jurisdictions for exchanges to require their customers to be subject to regulations that apply to banks, such as Know Your Customer (KYC) and Anti Money Laundering (AML) legislation. This means that exchanges can no longer offer their customers the privacy protections that are inherent in cryptocurrency transactions, especially when their users deal in fiat. Having to deal with the legacy banking system also leaves exchanges exposed to exorbitant costs for low-value transactions, arbitrary currency conversion charges and even fraud exposure where crypto was purchased with credit-cards and where the payment was canceled and reversed even if the crypto was already sent.

A lot of the friction that exchanges face when dealing with the legacy financial system can be alleviated by using Xank. This is mainly achieved by making use of Xank’s stablecoin functionality and thereby freeing up exchanges from having to use fiat rails as often as they currently do. In fact, with Xank, exchanges will be able to accept fiat denominated crypto payments without having to move any fiat altogether. They can accept fiat denominated deposits and withdrawals and use Xank for storing crypto in fiat denominated amounts. Furthermore, exchanges will be able to offer Xank stablecoin features to their users who will be able to move fiat-denominated amounts of crypto in and out of the exchange with very little friction. As no actual fiat is involved, certain privacy features can stay in place as exchanges usually offer higher movement limits for crypto-to-crypto movements of funds. Providing their customers the ability to hold larger fiat denominated amounts can attract more users to their platforms.

As an added benefit, exchanges that use Xank can reduce their exposure to weak Proof-of-Work based coins that are subject to 51% double-spend attacks as Xank is based on a Proof-of-Stake algorithm. Denominating crypto in fiat terms can also have accounting, auditing and tax compliance advantages. With the correct use of cold storage wallets, exchanges can hold vast amounts of funds that never need to touch the legacy financial network — thereby minimizing their costs and risks associated with bank account closures. In fact, exchanges may even be able to migrate most of their services and also offer new innovative crypto only features such as more fiat-to-crypto trading pairs.