Dear TradeOgre and KuCoin management,
As you may be aware, a significant portion of our subscriber base uses your trading services on a regular basis. As such, I’d like to offer a suggestion which I think will benefit all parties involved (the users and you, the exchanges).
Background
We at TCV are strong proponents of privacy coins, with Monero being the clear current leader. We have it as our second largest portfolio allocation (only marginally behind Bitcoin), and frequently write and speak about it – with perspectives ranging from practical to financial to moral. To many in our community, HODLing XMR is an important form of support for the establishment of a free economy within a digital world.
However, our support of the privacy coin cryptocurrency market (i.e., those projects that serve as sound money) extends beyond Monero. For various reasons (which we have documented in our reports) we believe that the cryptocurrencies of two other projects play a closely-linked, and critically important role in not only Monero’s success, but that of the sector. These two are Pirate Chain (ARRR) and Wownero (WOW). I have dubbed these two, together with XMR, the Privacy Trinity.
The Problem
As a matter of course, we and our community are increasingly looking to both value and trade ARRR and WOW in relation to Monero, not Bitcoin. More and more, we view ‘% of Monero’ as the appropriate measure of relative, and therefore, tradeable value. In other words, we view Monero as a Store of Value (SoV), not Bitcoin.
All of the above however, leads to an interesting market problem, which may be summed up by example as follows:
- I, as a privacy coin investor, may want to change my allocations – selling XMR to buy WOW or ARRR.
- In order to do so, I have two main options (if I don’t want to recklessly and over-aggressively trade the markets):
Option 1
- Sell small amounts of XMR at a time, for small amounts of BTC
- Stare at my screen trying to buy offered sizes or place orders that don’t push ARRR or WOW higher
- Rinse, and repeat
This option takes a lot of time, energy and mental focus. Given the bother, I may significantly curtail my activity or not bother in the first place. I, the customer have not gotten what I wanted, and you, the exchanges have missed out on trade commissions.
Option 2
- Sell my full amount of XMR, for a full equivalent amount of BTC
- Set a full allotment of buy-orders in the bid stack of ARRR or WOW – staggered or block.
- Go about my day, and check back later to see if my orders were filled.
This option takes much less time, as I ‘set it, and forget it’, but there are big problems with it. If the basis doesn’t weaken, my orders may not have gotten filled. To add insult to injury, I would have been forced to ‘sit in’ an asset I don’t care for – Bitcoin. Note that a similar problem could occur if I wanted to sell ARRR or WOW in exchange for XMR. My orders could get filled quickly, and I could be sitting in BTC until I checked back at the end of the day.
I may be holding Monero in the first instance believing that the privacy crypto market is deeply undervalued, especially relative to Bitcoin. But here I am now, forced to hold Bitcoin, living outside the privacy coin realm, just to change my allocations. Heaven help me if, during that time, Monero or other privacy coins pump relative to Bitcoin.
In view of all this, I, the customer, once again am likely to frustratedly curtail my trading – leaving you the exchanges with missed commissions.
**The Solution **
I propose the introduction of XMR trading pairs – specifically XMR-ARRR and XMR-WOW to begin. To the extent these are successful, you may wish to expand to other pairs, but to me this is the clear initial opportunity, as the two represent the clearest fundamental alignment with Monero (and therefore make the most sense to ‘pair-trade’, for our subscribers and the market as a whole at this initial juncture).
The Benefits
The benefits for investors/traders are fairly clear. Orders for trading between these pairs can now be placed, even for large sizes, without requiring buyers or sellers to park significant amounts of their capital in Bitcoin as an intermediary token. ‘Trading the basis’ will be easier to implement while reducing an aspect of the trade (holding Bitcoin) many would prefer to avoid. Investors/traders are happy.
With these frictions and obstacles to trading removed, volumes should increase, paying TradeOgre and KuCoin more in fees. They too are happy.
It’s a win-win.
Additional Considerations
Fees
Commissions are currently 0.2% per transaction. Individuals who wish to, say, sell Monero for Wownero will have paid those 0.2% fees twice – once on the exit from XMR and once on the entrance to Wownero.
Fees, therefore, for these particular pairs should be set at 0.4%. The issue for investors was never really about fees (although that’s a potential area to experiment with), so charging them the equivalent for a better trading experience should be accepted with little to no pushback.
Market establishment (depth)
You might be wondering – who will initially populate this market? Will there be people in the bid stack and offer stack with sufficient volume to make a difference?
Yes.
While I believe it won’t take long for market participants to organically respond with bid/offer orders, you already have all the orders you need to build a stack.
You can, right now, create your own complete bid and offer stack. Through a bit of coding, you can link your existing BTC-XMR bids and BTC-ARRR offers to create a single bid for either WOW or ARRR in XMR terms. The stacks would be linked, behind the scenes, to the stacks within the BTC trading pairs.
If a user clicks to ‘buy’ XMR-ARRR, then the functional transactions in BTC-XMR and BTC-ARRR both execute, generating you a total of 0.8% in trading fees – exactly what you would have earned had the investor done all the individual trades, but without the obstacles (and therefore higher volume).
As already mentioned, I believe that over time these pairs will have far more ‘organic’ orders placed directly in them – i.e., not just through mirroring other BTC pairs. But you will never be worse off than what’s already in your bid/offer stacks, and investors/traders should appreciate that by rewarding you with higher volumes (and fees).
Costs & Investment Return
While there will be a cost to implementing this, from a programmatic perspective it shouldn’t be that material. The concept is simple, and even if this concept requires significant new coding, the infrastructure is largely in place.
There will however, be some costs, and therefore the return on this investment must be considered. In this area, I see two areas to consider when you model the potential upside – one obvious, the other not.
The first is clearly what incremental volumes you expect. I’m sure you will make your own estimates, but I suspect they will be attractive – certainly with respect to modest costs.
Secondly, there is a potential impact on the valuation of the privacy coin market. Establishing these trading pairs, centered not around King-Bitcoin but rather King-Monero (for the privacy market), sends a powerful signal to the market as a whole: we are witnessing the establishment of a powerful new sector.
To me, this subtle communication has tremendous potential to attract greater attention, and therefore fund flows and valuations to the space. Higher valuations mean higher trading fees. Again, win-win.
Conclusion
I hope that you will give serious consideration to this suggestion. As a strong believer in the ethical importance of privacy-crypto, I offer it to try and play some part in the movement’s growth and success.
To the extent you wish to discuss the topic with me any further, you may let me know by DMing me on twitter (@misterztcv).
Best Regards,
Mr. Z
Crypto Asset Analyst
Post originally posted on CryptoVigilante.io
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