The Next Generation of Crypto Exchanges Will have Advanced Financial Instruments and Profit Sharing Built In

Between the waves of new crypto platforms we see every week and the innovation being released by existing platforms, the crypto industry is developing probably faster than any tech trend before it. But there is still a big gap between the maturity of existing financial markets and the crypto world.

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Exchange platforms are leading a lot of this innovation, which is not surprising considering how investment-focused most crypto users are. The exchanges are often the first and last points of contact between users and the market, making them the most fruitful areas for innovation.

KuCoin, an exchange platform that opened last year, has been working on innovative features that might make up the platform of the future. Among these are more advanced financial instruments and profit sharing.

Pairs trading

In terms of financial instruments, trading pairs are one of the most commonly used tools in conventional financial systems. But despite their relevance, trading pairs are used weakly in crypto markets. KuCoin want to change this, and have chosen to roll out the widest range of Bitcoin Cash (BCH) trading pairs of any platform.

As of two weeks ago, the the following trading pairs are available on the KuCoin exchange: BCH/KCS, BCH/ACT, BCH/XAS, BCH/UTK, BCH/DENT, BCH/DAT.

The idea behind trading pairs is as battle-tested as it is simple: take an asset you want to speculate on, and hedge against this position by picking another asset that is highly correlated with that asset so that you factor out as much “noise” in the market as possible.

In other words, if you bet that one stock is going to be outstanding, pick a similar stock to compare it to in order to single out the gains/losses unique to the target stock. This way the other price influences like market, sector, and economic volatility don’t have a bearing on your position.

How is this achieved? By short selling one of the pair and going long on the other. The difference between the two positions is what you lose or gain on the transaction.

KuCoin have a range of pair trades available they believe will develop the nascent crypto financial instrument market.

Income redistribution on an exchange

Considering how relevant economies of scale are in the tech world, exchanges can make this a part of their business model. Essentially this involves a greater number of users making the overall cost to participate lower.

KuCoin are using profit redistribution to tap into the concept of scale economics. The KuCoin token (KCS) allows the holder to get a share of the fees charged on the exchange simply by holding the token. Similar to treasury bonds, you are essentially buying stock in the platform and profiting from its growth.

KuCoin are hoping that their support of instruments like pair trading and their profit sharing dynamic will put them at the forefront of the next wave of exchanges.