Cryptocurrency Exchanges in Focus

Analysis of the state and developement of cryptocurrency exchanges in 2018.

Under the increasing trend of token globalization, in terms of both asset allocation and trading activity, exchanges currently play a crucial role in the ecosys. Written and published by TokenInsight, their 2018 Cryptocurrency Exchange Annual Report, based on the data of more than 400 exchanges, analyzes the general status and specific developments from a comprehensive quantitative and qualitative perspective.

Looking back at the 2018 cryptocurrency market, through all the ups and downs, exchanges, as one of the most important market players, were involved in plenty of hotspots, including platform tokens, trading, mining, open trading platforms, decentralized exchanges and more. In the turbulent secondary market, on the one hand, some outstanding exchanges constantly pursued innovation in trading patterns, operational activities and technical architecture; while on the other hand, other exchanges saw struggles against problems of security, trading patterns, compliance which ultimately led to them being weeded out of the market.

The data in the following article, based on TokenInsight’s database and publicly available information, provides solid support for this study of empirical research on exchanges. For more information, feel free to consult the complete report.


In the field of cryptocurrencies, exchanges are mainly divided into decentralized exchanges and centralized exchanges. Decentralized exchanges, on which deal-matching and asset liquidation are realized through smart contracts, and user funds are under their own control, hope to ease problems of opaque trading rules, in-transparent fund storage and security faced by centralized exchanges.

In 2018, decentralized exchanges gained widespread market attention and they continued to grow. As of the end of 2018, the number of decentralized exchanges accounted for 19%, while their trading volume is as small as less than 1% of the centralized exchanges’ one.

Centralized exchanges mainly provide token trading services, with some also providing fiat currency trading services. There are currently two ways to fulfill fiat currency trading, including off-exchange trading or OTC (Over-The-Counter), and the other being on-exchange trading. Among the 321 centralized exchanges analyzed by TokenInsight, over 30% are registered in South America or Europe. Exchanges registered in Africa have the lowest proportion of on-exchange supported fiat currency trading at only 14%, and the highest proportion of OTC trading, which is around 50%. On-exchange fiat currency trading requires more policy compliance, trading security, and technical stability, therefore, the proportion of exchanges that support fiat currency trading services within the platform is low.

According to TokenInsight’s analysis, there are currently more than 70 exchanges supporting the trade of at least one fiat currency. More than 60% of them support only one fiat currency, and only two exchanges (EXMO and Liquid) provide trading services for more than five fiat currencies. Among exchanges that provide fiat currency trading services, 41% are registered in Europe followed by Asia with 32%. South America (4%), Africa (4%) and Oceania (4%) all have exchanges providing fiat currency trading services, but their proportion is low, and the total of the three regions represents less than North America (16%).

The USD and the Euro are the most accepted in fiat currency trading, followed by the British Pound and the Japanese yen. Among the over 70 exchanges that provide fiat currency trading services around the world, more than 40% support USD and Euro, and more than 15% support the Japanese Yen and the British Pound. The American and the European currencies are also geographically the most widely-supported ones. South America is the only continent not having exchanges providing USD trading, and only Oceanian exchanges do not support Euro trading. Exchanges in South America and Oceania prefer local fiat currencies, such as the Brazilian real and the Australian dollar, for trading pairs.

Globally, Asia and Europe are the most popular places in terms of exchange registration, and more than 70% of the over 300 centralized exchanges counted by TokenInsight are registered in these two continents. In terms of the number of exchanges, Singapore, Hong Kong and South Korea are the top three regions in Asia; the United Kingdom, Malta and Turkey are the leading European countries.

The growth of the global number of exchanges was directly affected by the token market status. In 2013 and 2017, with the increase of the Bitcoin price, cryptocurrency exchange growth rate was 227% and 54% respectively, the highest in comparison to the three years preceding these price increases. According to TokenInsight’s analysis of the top 200 exchanges in terms of global trading volume, new exchanges’ trading volume accounted for 24.5% of the total in 2018. Thanks to relatively loose regulatory policies, Africa has become a new preferred destination for moving exchanges in the context of the general tightening of global regulation after 2017.

TokenInsight counted the number of new listings of more than 100 exchanges worldwide in 2018. Exchanges in the statistics have accumulated a total of 5,181 new listings, with an average of 103 per week. From a global perspective, European and Asian exchanges have been particularly active regarding new listings, and in Q3 and Q4 of 2018, the market has maintained a relatively high frequency of new listings. Judging by token inventories on exchanges, 72.5% of the exchanges provide less than 50 trading pairs. Only 14 exchanges offer more than 200 trading pairs, accounting for 4.38% of the total number of exchanges included in the report.

Exchanges Trading Volume

Trading volumes of exchanges, which fluctuated with the same trend as the token market, continuously fell throughout the year slightly recovering at the end of it.

All types of exchanges have shown significant industry concentration characteristics in terms of trade.

Decentralized exchanges represented a very small share, and their growth was closely related to the ecological development of general platforms.

The total daily trading volume of exchanges has shown a continuous decline since January 2018. In April, trading volumes increased slightly, while the BTC price also showed an upward trend. Overall, the trends of trading volume from leading exchanges in 2018 were similar, and only Bithumb showed an independent trading volume trend at the end of the year. In terms of geographical distribution, of the 300 exchanges analyzed by TokenInsight, the ones registered in Europe and Asia represent 75% of the total trading volume, followed by ones in North America and Africa, each accounting for about 10%. Exchanges in South America show the lowest trading volume, accounting for less than 1% of the total.

Decentralized exchanges were one of the hot topics of the token trading market in 2018. In the underlying report, TokenInsight observed 53 of them, which are mainly based on Ethereum and EOS. The development of decentralized trading protocols in 2017 and the explosive growth of DApp trading volumes in 2018 has brought the completion of decentralized exchanges’ infrastructure, and also an increase in market trading demand. The transaction volume of decentralized exchanges in Q1 2018 increased by 185% from the previous month, and the highest single-day volume exceeded 400 million USD. Nonetheless, compared with the centralized exchanges, the decentralized exchanges’ share declined after Q3 of 2018, which to a certain extent, reflects that decentralized exchanges were more sensitive than centralized ones to the overall downward trend of the secondary market.

Ethereum-based tokens still dominate the market in terms of trading amount and volume. Decentralized exchanges based on the Ethereum network have a relatively long duration, with more mature technology, upgraded quality of services and improving user experience. Nevertheless, since June, the trading volume of decentralized exchanges based on the EOS network and their share of the total number of decentralized exchanges have gradually increased. The launch of the EOS mainnet in June 2018 has brought the rapid development of the EOS ecosystem, and various DApps (including exchanges) have emerged, which has stimulated the trading of the EOS token.

According to TokenInsight’s selected 38 Ethereum-based decentralized exchanges, a large gap was found between the tail exchanges and leading exchanges in terms of trading activity. In early 2018, ForkDelta and IDEX accomplished more than 95% of the total trading volume. With the development of decentralized trading protocols such as Bancor, Loopring Network, 0x and Kyber Network, the trading volume of relay exchanges based on such protocols continued to rise. In Q4, decentralized exchanges ranking after the top 10 showed a growth rate of 48% compared to Q1, exceeding the leading exchanges. However, the current trading volume of ForkDelta and IDEX still accounts for more than 80% of the total.

By the end of 2018, the number of EOS-based tokens has reached 2,859. Their respective market value is generally low, and they have had difficulties to be listed on centralized exchanges, yet decentralized exchanges provide an opportunity for the circulation of such tokens. Since July 2018, EOS-based decentralized exchanges have grown rapidly, with their trading volumes in Q4 increasing more than 4 times those of Q3. Whereas the maximum cumulative daily trading volume of EOS-based decentralized exchanges was only 7.51 million USD, the single-day trading volume of Binance over the same period was more than 600 million USD, indicating that decentralized exchanges are still far behind the centralized ones.

Similar to ETH-based decentralized exchanges, EOS-based decentralized exchanges have significant head effects, with Newdex dominating with more than 70% of the trading volume. The relatively small size decentralized exchanges, through various operational activities, can sometimes increase volumes in a short period of time.

Regulatory Compliance

Global regulators are gradually incorporating token exchanges into the financial regulatory system, and an increasing number of exchanges is actively seeking to get operations in compliance with their legal environment.

Countries and regions have different attitudes towards tokens, but in the future, anti-money laundering will be the common focus of regulation across the globe.

Global regulators have two main forms of regulation of token exchanges. First, most countries choose to incorporate token trading activities into the existing regulatory framework. Exchanges comply with current laws and regulations as financial service providers and traditional financial institutions. Second, some countries have issued specific rules considering the characteristics of cryptocurrency and token exchanges. In both cases, most countries require exchanges to acquire licenses to operate.

TokenInsight selected the top 50 exchanges in trading volume as a sample to analyze their business compliance. More than 60% of these leading exchanges have obtained compliance licenses, 21% have obtained compliance licenses worldwide; 40% hold licenses in a single region, mainly where the operating entities are located or where policies are relatively friendly.

Among exchanges that did not explicitly receive a license, more than 70% of them are in the compliance application process or gradually improving KYC and AML processes within their platform. Exchanges such as CoinEgg and CoinBene are actively applying for legal licenses; exchanges such as DigiFinex and BitForex reduce regulatory risks by developing cooperations with compliance agencies; exchanges such as EXMO have strengthened mandatory real-name verification of fiat currency transactions.

According to the regulatory requirements of different regions, the nature of licenses obtained by exchanges as operators of token trading platforms is also different. Major developed countries have chosen to incorporate token exchanges into the traditional financial regulatory system and launched specific policies based on the development of the token trading market. In the United States, for example, a token exchange is required to register with the US Securities and Exchange Commission (SEC) and is regulated as a financial services provider. As a token trading service provider, exchanges require a digital asset trading license from the New York Department of Financial Services (NYDFS). Some countries, such as Malta and Uganda, have chosen relatively supporting policies to encourage the development of token exchanges on their territory.

Security Analysis

Economic losses caused by security incidents show vast similarities to the performance of the token market during fluctuation periods; and most exchanges still have vulnerability elements on their websites, the account creation mechanism, or the method of fund storage.

850 million US dollar was stolen from exchanges in 2018, reaching the highest level in history.

Centralized exchanges store their users’ funds. By doing so, it creates huge pools of funds attractive to hackers. Since 2013, exchanges have been hacked and users’ funds have been stolen for many times. The methods used by hackers include exploiting exchange website vulnerabilities, funds storage vulnerabilities, or stealing user information.

2014 and 2018 witnessed the largest amount of funds stolen. Especially in 2018, where records show that hacks have reached a record high. At the same time, the number of security incidents of exchanges from these two years is more than 10, which is the highest amount in the past five years. The trend of the amount of losses in security incidents of exchanges is similar to the trend of the digital token market: At the end of 2013, the BTC price rose from 90 US dollars to about 1000 US dollars; at the end of 2017, the token market represented by BTC again entered a round of skyrocketing prices.

Attacks in 2018 concentrated on exchanges in Japan and South Korea, and in these incidents more than 30 million USD were lost. The biggest loss from hacking incidents in recent years occurred from the attack of CoinCheck, with 523 million USD having been stolen.

Hacking incidents on exchanges occur frequently, and multiple attacks can happen on the same exchange. Bithumb lost information of 30,000 users in a hack in 2017, and the attack of the same exchange in June 2018 resulted in a loss of 30 million USD.

Security incidents can also directly lead to the bankruptcy of exchanges. The most famous is the Mt.Gox incident in 2014. At that time, Mt.Gox, the exchange with the highest trading volume in Japan, had about 850,000 BTC stolen, which led it to its bankruptcy.

TokenInsight has selected 40 exchanges with top trading and user volumes and evaluated their security from the website vulnerability and account information settings perspectives.

TokenInsight uses the High-Tech Bridge’s web vulnerability scanning score to evaluate exchanges’ website security. The testing focuses on the server security, the content privacy policy and the HTTP protocol security of the website. Through these aspects, the degree of protection of the users’ private information and the security of users’ information transmission are measured. For example, the third-party content of the website may be accessed through non-encrypted means, which may result in the users’ information being obtained by the third-party content provider.

From the perspective of overall distribution, it shows an average head distribution and a high tail. There are 15 exchanges which scored an F grade, accounting for about 38%; 3 exchanges scored A-, accounting for less than 10%. Currently, the average level of these 40 exchanges is between B- and C+. Exchanges at this level have some HTTP headers related to security and privacy missing or misconfigured, plug-ins lack security protocols, or they support some insecure third-party content. Specifically, among the 40 exchanges, F-rated ones include the European exchange Bitstamp, the North American exchange Gemini, the African exchange DigiFinex, and the Asian exchanges Bithumb, Coinone, CoinEgg, etc.; The highest rated group, A-, includes the Asian exchange Bitbank, Liquid, and the North American exchange Kraken.

Of the 40 exchanges selected, Asia has the largest number of exchanges, accounting for 48%. While Africa has the lowest percentage, accounting for 8%, including OKEx and DigiFinex, which are registered in Seychelles, Africa. As for the distribution of web vulnerability scores, about 47% of Asian exchanges scored F, which took up the highest proportion; 22% of the European exchanges scored F, accounting for the lowest proportion. As for the rating above B+, North America has the largest proportion (22%) and Africa has the lowest (0%).

TokenInsight mainly considers 4 dimensions with regard to the exchange account information settings, that is, the account password length limit, password strength limit, double passwords and secondary verification for the first login. The password length limit refers to the exchange restrictions on the user’s password characters. 27 exchanges (67% of the total) require a user password length greater than 8 characters, there is one exchange called CoinsBank that has no restrictions on the user password length. The password strength limit means that the password is required to contain a combination of numbers and letters. There are 29 exchanges (73%) that limit the user password strength. Dual verification setting means that the password setting of the exchange includes both the login password and the transaction password, and 19 exchanges (48%) have implemented this setting. The second verification for the first login means that the first login requires SMS, email or Google to be confirmed. There are 12 exchanges (30%) that require the secondary verification for the first login.

Funds in exchanges are stored in hot and cold wallets separately. A cold wallet is an offline wallet, which is more secure because it is not constantly connected to the internet. Generally, cold wallets are less active, and each transfer represents a large amount of money. A hot wallet is an online wallet, and hackers are more likely to access it. For exchanges, hot wallets are used in users’ daily transfers.

The balance of funds in hot wallets of exchanges is generally lower than that of cold wallets. Yet, the number of hot wallets of exchanges is often more than that of cold wallets. The exchanges assign each user a deposit address and a withdrawal address. When the user deposit address has funds coming in, this part of the funds will enter the hot wallet. The interaction between the hot wallet and the user address is frequent, but the transfer amount is generally small, rarely involving thousands of BTC. The frequency of interaction between hot and cold wallets is very low, but the amount involved in each transfer is at least a few hundred BTC.

TokenInsight tracks the on-chain transfer information of the BTC wallets of exchanges and reflects their transfer activity in real time.

The cumulative number of historical transfers of Huobi’s BTC hot wallets is the highest, reaching 5.38 million; the cumulative number of historical transfers of Binance and Bitfinex is more than 2 million. When comparing the number of hot wallet addresses, Bitfinex has the largest number of addresses (800,000), while Huobi has about 500,000. Huobi’s hot wallets transfers is highly active, with approximately 11 transfers per address. Binance has about 5 transfers per address. The BTC cold wallet addresses of the 3 exchanges is similar, none of which is more than 15. The cumulative number of historical transfers of Huobi’s BTC cold wallets is the highest (45,000) with about 7 times that of Bitfinex. Huobi has also large funds frequently transferred in and out of cold wallets.

Users and Popularity

Search interest for exchanges in 2018 has dropped significantly with the market downturn.

Searches now come mainly from Asia and Europe.

Users have paid more attention to leading exchanges, which are obviously more engaged in social activities.

To reflect the popularity and user interest of exchanges, TokenInsight has collected data from 200 exchange websites around the world. This section analyzes the search popularity of exchanges, their website traffic, and social media activities.

On a global scale, Asian users show the greatest attention to digital token exchanges. The trend distribution is generally consistent with the geographical distribution of exchanges (registration place), indicating that Asia is the main area where exchanges operate, and core users come from. Of the 10 leading exchanges in 2018, Binance is the most popular exchange in Google Trends, followed by Coinbase. The searching trend decreased significantly throughout the year 2018. The top 2, Binance and Coinbase had the largest decline in the searching trend. Based on the search index of Binance (100) at the beginning of 2018, only 5% remained at year end. Coinbase was less popular than Binance at the beginning of the year, but surpassed Binance in June 2018, when Coinbase started the application process of the US SEC compliance regulation. It is expected to become a regulated broker and has received widespread attention in the market.

Furthermore, the number of visitors of Binance and Coinbase is three times higher than the overall average. KuCoin is the exchange with the most widely distributed visitors, with the number of countries and regions exceeding 30. Visitors of US-based token exchanges, represented by Coinbase and Gemini, mainly come from the United States. Visitors of KuCoin and Bitfinex are from various countries, which indicates to a certain extent that their global operations are good.

The top 3 exchanges have far more Twitter followers than other exchanges. Coinbase and Binance are still the most popular exchanges within social networks. Coinbase has more than 1 million followers and Binance has about 900,000. HitBTC is the most active exchange on Twitter, with more than 8,000 tweets posted. Following is KuCoin, which released more than 5,000 tweets.

Exchanges Platform Tokens

BNB has significantly better performance in price and market value than other platform tokens of the same kind

Affected by the market, the platform token trading volume was low at the end of the year

In 2017, Binance launched the platform token BNB, giving holders a fee discount or other benefits on its platform. Since then, more and more exchanges have issued platform tokens. According to the TokenInsight classification, among the top 500 tokens in terms of market value, there are 15 tokens issued by centralized exchanges.

BNB has the highest price among the top 200 platform tokens in current market value. In January 2018, the price reached a maximum (close to $20), and at the end of the year the minimum price was about $5. The price of HT, the token issued by Huobi gradually increased from February to the highest price in May, at about $5. After May, it fell, fluctuating around $1 at the end of the year.

The total market value of platform tokens increased significantly in the first and the third quarter of 2018. After the fourth quarter, affected by the overall market conditions the market value shrank severely to only about 30% of the beginning. BNB has the largest volume of platform tokens and is one of the ERC-20 tokens with the highest market value.

The trading volume of platform tokens has a high correlation with its market value. BNB and HT were the most popular in the first quarter, and the trading volume of BIX and OKB has increased significantly since the third quarter. In the fourth quarter, due to the token market downturn, the trading activities of all platform tokens were significantly reduced.

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