When Betfair launched in 2000, some people thought it would be the end of conventional bookmakers.
While that hasn’t happened, with the largest volume of bets still taking place with traditional bookmakers, like Bet365, behind the scenes it’s had a huge impact…
As my colleague professional football bettor Adam Cheng says, “Betfair forces bookmakers to match its exchange prices, otherwise they’re open to arbitrage”.
So, in a way Betfair has won out against traditional bookies. And this is reflected in the price investors were willing to pay, valuing the company at $1.5 billion after its first 6 years.
Needless to say, the people with their fingers in this pie at the early stages made a killing!
And now the same thing is happening in the world of cryptocurrencies, where traditional exchanges are being challenged by a new crypto-specific breed of exchange…
Two types of crypto exchanges
There are two types of crypto exchanges…
1: Centralised Exchanges
The first are centralised exchanges like Coinbase, Binance, and Kraken.
These exchanges operate like the “traditional bookmakers” of the crypto world. And they’re not much different to stock and options trading exchanges like RobinHood, IG, and eToro.
This has many benefits and some serious downsides (which makes them ripe for innovation, and is why the second type of exchange is flourishing).
Here’s a breakdown of the pros and cons of centralised exchanges…
? Easy to deposit traditional currencies and exchange for cryptos
? Customer support as with any other company (although Coinbase gets a lot complaints on this front)
? Curated list of cryptos, so there’s a decent “standard” to ones you can buy
? You’re trusting a private company with your traditional currency and cryptos (and they don’t fall under the Financial Services Compensation Scheme (FSCS))
? Vulnerable to hacks (in 2014 centralised exchange Mt. Gox lost 850,000 of its customers’ Bitcoins)
? Potentially high fees, especially on some of the most popular centralised exchanges
? You have to sign up with photo ID (not a problem for some, but worth mentioning)
2: Decentralised Exchanges
The second type of cryptocurrency are decentralised exchanges, or DEX for short. Examples are UniSwap and Curve.
You can think of these like the Betfairs of the cryptocurrency space. Except they’re not just peer to peer markets, but completely decentralised in terms of ownership too, because they’re not owned and controlled by one entity.
So, instead of trusting a centralised private company to hold and exchange your cryptocurrencies, like with Coinbase, you’re instead relying on the cryptocurrency technology itself to secure these transactions without any human interference.
This might seem a bit scary at first, but it’s the whole point cryptocurrencies took off in the first place! The promise of cutting out the middleman and using cryptography to secure financial transactions instead.
And DEXs are now delivering on that promise for trading exchanges, coming at Coinbase and others like Uber went after the traditional taxi industry!
Here’s a breakdown of the pros and cons of decentralised exchanges (DEX)…
? Not relying on a centralised point of failure, like with Coinbase, so (if you trust in the decentralised tech of crypto) your money held on exchange is potentially safer
? Uses cryptographic technology so less vulnerable to hacks (although they can still take place as this tech is still developing)
? Much wider array of cryptocurrencies available (and if you want big gains you’ll want to be able to invest in smaller, unheard of coins)
? Fees can be much lower because there’s no middleman taking a cut (although because of network utilisation this isn’t currently the case with Ethereum based DEXs)
? More complicated than using a traditional centralised exchange (although the ease of use of DEXs has come a long way)
? No conventional customer support (although many have good online communities where you can ask questions)
? Current fees on Ethereum based DEXs are relatively high (though they should come down when Ethereum gets its pending upgrades)
Now, I’m not suggesting you need to leave Coinbase and start using DEXs to trade crypto (I use both centralised and decentralised exchanges depending on what I want to do).
What I am suggesting though is that you consider investing in some DEX related cryptocurrencies (many of which you can even buy on Coinbase!)…
DEX “Betfair cryptos” are going nuts
DEX cryptos are a subset of Decentralised Finance (DeFi) cryptos, which is what we’re building the Crypto With Kash portfolio on.
And DEX cryptos have been performing extremely well over the last year, for example…
UniSwap went from $2 to $29 dollars in less than a year, turning every £100 invested into £1,450.
It’s too late to capitalise on UniSwap, but I’m about to add an overlooked DEX to the Crypto With Kash portfolio this Friday (that’s tomorrow). One that could follow the same path as UniSwap… and maybe even top it in the future.
I’m just finishing my full write up on this crypto.
I’ll let you know when it’s ready tomorrow, and also share some more details about why this specific kind of DEX crypto is popping right now.