How P2P platforms enhance crypto exchange solutions
How P2P platforms enhance crypto exchange solutions
- Mousser R.
- 8 min read
Table of Contents
P2P & Crypto Synergy
How are P2P platforms expanding the market by using cryptocurrencies?
P2P platforms —those that allow for two individuals to directly exchange assets— are revolutionizing the way people transact, borrow and invest funds. In parallel, the emergence of banking-as-a-service platforms has changed the way the fintech industry functions and is constantly enabling new features.
"How can a P2P become scalable and profitable?
Crypto-BaaS partnerships"
These P2Ps are faced with a painful problem on a regular basis: How can they build a scalable and profitable business in such a competitive landscape? The solution lies in a simple business decision: becoming a Fintech with crypto capabilities. By partnering with the latest wave of banking-as-a-service platforms, P2Ps can keep their core business model, while differentiating themselves from their competitors through crypto.
Bank Loan or P2P?
P2P lending Vs. Traditional bank loans
Traditionally, individuals and small companies who require a loan need to apply via a brick-and-mortar bank. That model is now being challenged. Those who want to evade the high-interest rates and long, tedious processes may opt for an alternative way of borrowing funds — P2P lending.
P2P lending is a model that enables loans for individuals and businesses through online platforms that match creditors with debtors, without the use of arbiters. This has streamlined the lending process and provided individuals and businesses with more flexible funding method. And it also comes with an upside for the creditor: because there’s no bank to take a big cut, they get a higher interest rate.
Growth Potential
P2P's potential growth overshadows the challenges of fraud and competition
It is unavoidable for P2P platforms to face the challenges and risks of payment default, fraud, and banks pouring their vast resources into getting their customers back. Nevertheless, the growth potential of the P2P segment remains robust, mostly because of elements such as their comparatively high interest rates for creditors (without a proportional increase for debtors), their technology-and-user-first approach, and the growing digital banking market size.
BaaS for P2P Lending
These challenges create demand for highly transparent and secure P2P platforms. They must be able to protect themselves from losses reliably, while offering competitive opportunities for both creditors and debtors as an alternative finance method.
To accomplish this, they need reliable partners that are manageable and compatible with each other. If P2Ps try to build everything themselves, they will likely be overwhelmed. If they find 5 different partners for each kind of product, it will become unmanageable. In this matter, the BaaS-based platform for P2P lending is a promising solution for the future. It integrates everything under one roof, and ensures it runs safely and reliably, even providing AML monitoring at times.
Advantages of the P2P crypto exchange
There are various factors that differentiate the P2P crypto exchange business model from the conventional crypto exchange. These factors nudge many casual users towards P2P crypto exchanges over conventional ones. The main four are:
- Lack of trade costs
- Flexible pricing
- Global market reach
- Enhanced privacy
Lack of Trade Costs
Most crypto exchanges set a deposit fee for every deposit and withdrawal of both the crypto and fiat currencies. All of them also charge a fee for all trading activities, either as a fixed percentage or as a spread from the price.
In a P2P crypto exchange though, there’s no elaborate trading platform involved. It’s just two people exchanging currencies, so no trading fee is charged. No funds are needed to carry out the trade of assets, beyond the blockchain fee, that is.
Flexible Prices
In conventional cryptocurrency exchanges, users have to adhere to the market prices when buying and selling. They can put an order for a given price, but that one is still dependent on the market actually reaching that price eventually. All investors are by default left with no choice but to buy or sell at the best available market price at that moment, or wait.
In a peer-to-peer system though, users can browse among the trades and choose at which price they desire to buy or sell. There’s more room for buyers to find a price that suits them, and for sellers to interpret the market and set the price they believe is fair.
Global Market Reach
Peer-to-Peer crypto exchanges solve the limitation of expensive trading fees by finding desirable trades from across the world in a matter of seconds. They essentially fill the shoes of an arbiter, without actually interfering in the transaction. Secured by smart contracts, trades can easily be managed from across the world in a global marketplace.
It could be argued that only through a proper, global P2P exchange, can the true value of a currency be realized. This way, it is essentially ensure that both buyers and sellers have access to fair prices and complete information.
Enhanced Privacy
While privacy is one of the tenets of cryptocurrencies, over the last years it has waned due to institutions trying to cull —with good reason— rampant money laundering. While for the most part it doesn’t affect the average person, beyond a lengthier KYC, some banks, institutions and even countries have taken it further: flagging purchases, or prohibiting them altogether.
Some banks will actively block debit card purchases of crypto in an exchange due to “suspicious activity”. A few countries will outright tell exchanges that they cannot onboard their nationals and enable them to buy and sell crypto.
The solution here is the enhanced privacy enabled by P2P platforms. By skipping the conventional exchange altogether, the buyer can simply make a bank transference, and the seller will send the crypto back. No debit card blocking, no government censoring: P2Ps democratize trading.
Closing Thoughts
P2P crypto exchange development has increased in recent years. With constraints on cryptocurrencies being enforced around Europe, the popularity of the P2P exchange model is growing.
P2P delivers flexible fees and trades, allows users to choose their preferred prices, while charging no extra trade costs. As a bonus, they tend to come with better privacy, remove the middlemen, and connect formerly separate markets. The only thing they need to properly scale their business and offer new features and products is a strong, reliable partner with solid infrastructure: a crypto-BaaS platform.
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