Trading is everywhere, and the exchange model is the best crypto business.
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Trading is everywhere, and the exchange model is the best crypto business.
As the crypto economy evolves and all assets move on-chain, more exchanges will emerge.
Navigating Web3 tides with focused insightsAuthor: MASON NYSTROM
Translation: TechFlow
Crypto's superpower is creating new assets and markets.
As a result, one of the most common and successful business models in crypto is the exchange model. If you've spent time in crypto, this isn't surprising—but I believe this model is often underestimated when evaluating crypto companies and protocols.
Exchanges can emerge in various contexts, but typically involve creating a marketplace for some asset or service and providing mechanisms to facilitate those trades.
Today, I try to ask myself one question—how could this protocol or business become an exchange? For some businesses, this is obvious; for others, it requires imagination.
A general rule of thumb is that the closer an application is to transaction execution, the more likely it is that a startup app can evolve into an exchange. This is intuitive for apps that execute trades directly (e.g., swaps), but also applies to applications in privileged positions within the stack (e.g., along value flows) or those starting as SaaS products that can evolve into platforms with strong marketplaces.
Exchanges are well-positioned to emerge in the following scenarios:
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New on-chain assets emerge
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Applications control distribution and can introduce trading behavior
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New services appear that impact valuable on-chain states or are tied to transactions
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Crypto games control their own asset issuance and have open economies
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Developer platforms can introduce service markets or auction houses for trading
When New On-Chain Assets Emerge
This is the most obvious scenario where exchanges are likely to appear. Coinbase created a Bitcoin market. Early players like EtherDelta showed demand for trading long-tail tokens, though later competitors such as Uniswap became dominant. The same holds true for newly created assets like NFTs (e.g., SuperRare, OpenSea), derivative assets like stablecoins (e.g., Curve), and perpetual contracts (e.g., Deribit, dYdX).
Of course, not all exchanges succeed or possess similar moats. Some new assets, such as ERC-1155s or Bitcoin ordinals, may be better served by existing exchanges (e.g., Magic Eden) rather than new entrants. Exchanges built around new assets are typically most defensible when they benefit from liquidity network effects, control end-user distribution, or hold a privileged position as issuers of the underlying traded assets.
Applications That Control Distribution
Generally, controlling end-user distribution enables applications to evolve into exchanges. Wallets like Phantom and MetaMask started as tools, but MetaMask Swaps turned every wallet into an exchange. Telegram bots act as exchanges, but exist where users already spend time—their direct messages. Social apps like Farcaster, Lens, and Unlonely offer built-in trading features to swap assets—such as meme tokens, NFTs, or points—right at the point of distribution. Similarly, Solana’s blinks now provide a model for any app to implement in-app trading and become an exchange.
Looking ahead, I expect more distribution-focused apps to leverage primitives like Solana blinks, Farcaster frames, or Lens open actions to enable in-app trading. Historically, web2 apps were forced to redirect users to other platforms to complete transactions, but blockchains now allow trading directly at the point of distribution—meaning every app can become a marketplace.
Markets for New Services
Service providers that impact valuable on-chain states or are connected to transactions in some way have the potential to become exchanges. For example, oracles bring off-chain data (like stock prices) on-chain, which can affect the price of other assets, trigger liquidations, or create arbitrage opportunities—leading to instances of Oracle Extractable Value (OEV). Oracle providers like Pyth are adopting the exchange model by creating auctions that bundle transactions with oracle updates, allowing users to pay fees for priority processing. Bridges and cross-chain interoperability services naturally function as exchanges too, influencing asset pricing in similar ways.
More nascent are ZK proof markets and services that must submit data on-chain. Thus, ZK proof markets (e.g., Gevolut) and aggregators (e.g., Nebra) will compete with transactions and other proof generators for scarce block space. While the proof services landscape is still evolving, leading providers will benefit from economies of scale (more proofs → more aggregation → cheaper proofs → more proofs), potentially making these service markets valuable exchanges.
Crypto Gaming
One key difference between Web2 gaming and Web3 is the shift toward open economies with transferable assets. Since crypto games like Axie typically control both asset issuance and velocity (e.g., turnover rate), they can vertically integrate their in-game exchanges or otherwise act as brokers for their assets. This naturally creates opportunities for Web3 games to introduce exchange-based business models.
Developer Platforms as Markets or Auction Houses
The case for developer platforms is slightly less obvious, but they benefit from economies of scale and occupy privileged positions within the stack, keeping them closely tied to transactions.
Rollup-as-a-Service (RaaS) providers like Conduit and Caldera can insert themselves into value flows by creating their own shard sequencers, becoming focal points for transaction ordering across RaaS-powered chains. While shared sequencers can order blocks independently, they could also auction transaction slots and capture MEV (Miner Extractable Value).
Another core piece of developer infrastructure is Wallet-as-a-Service (WaaS) providers (e.g., Dynamic, Crossmint, Privy), which connect user funds across different applications, delivering sticky experiences for both users and developers. With this lock-in, WaaS providers can offer in-app trading, on/off ramps, swaps, and potentially wallet-level exchange plugins.
As the crypto economy evolves and more assets move on-chain, we will undoubtedly see even more exchanges emerge.
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