Crypto Exchanges Should Segment Users: Chainalysis
It’s still a difficult time for crypto exchanges. But they can take steps to ameliorate the situation.
In their fresh report “The Chainalysis Guide to On-Chain User Segmentation for Crypto Exchanges”, the blockchain data platform Chainalysis says that despite market conditions improving, it is still tough for crypto exchanges.
The number of exchanges available in the market reflects this, with their number decreasing from 750 to 640 since 2022. Dwindling transaction volumes and growing competition from decentralized exchanges are amongst key reasons.
Number of active exchanges per month, Jan 2022 – Apr 2023, Source: Chainalysis
At the same time, the number of crypto currency users continues to increase.
“Chainalysis has approximated that growth on the graph below, which shows the number of active or balance-holding personal wallets — also known as unhosted wallets, as they are not hosted by a service and are under the sole control of the owner — across all blockchains Chainalysis supports over the last five years,” the report reads.
Number of active personal wallets, 2018-2023. Source: Chainalysis
The analytical group claims that the exchanges who will be able to attract those users will have the chance to outpace their competitors when the crypto winter comes to an end.
However in order to do so, the authors note, it is advisable to segment users because they are not a homogeneous group. This is all the more possible as such indicators as holdings transaction habits and product preferences of users in real time, allow to do so. The company provides the following segmentation:
- Early retail: Wallets active since before January 1, 2020 with holdings below $10,000 USD.
- Early professional: Wallets active since before January 1, 2020 with holdings between $10,000 and $10 million.
- Early institutional: Wallets active since before January 1, 2020 with holdings above $10 million.
- Late retail: Wallets that became active on or after January 1, 2020 with holdings below $10,000.
- Late professional: Wallets that became active on or after January 1, 2020 with holdings between $10,000 and $10 million.
- Late institutional: Wallets that became active on or after January 1, 2020 with holdings above $10 million.
According to the group, the predominant number of active weekly wallets are owned by the late retail segment. However, they also command the least capital.
Cryptocurrency exchange segments. Source: Chainalysis
Using the example of the now-bankrupt FTX and factoring in another important aspect, i.e. churn rate, which, according to Chainalysis, is “ nearly as important to assessing a user’s value to the exchange as their inflows”, the authors usethis formula: Lifetime expected inflows = (Average inflows per week) / (Average weekly churn rate).
As a result, a different picture emerges in terms of segment value for businesses. This is, for example, visible in the case of early retail vs. early professional segments.
Cryptocurrency exchange segments assessed using the formula Lifetime expected inflows = (Average inflows per week) / (Average weekly churn rate). Source: Chainalysis
“For instance, while early retail wallets initially appear to be slightly more valuable to FTX than early professional wallets, we see that early professionals on average send nearly 5x more crypto to FTX over their entire lifetime due to their significantly lower churn rate,” the authors write. They add that early retail wallets end up being less than twice as valuable as late retail wallets, despite sending more than 60x more to the exchange per week.
Stemming from the report is the notion that the exchanges should paint the bigger picture by not just looking at the inflows of customers but also examining the churn rate. This will help them to interact with the segments in a more efficient way.
Previously, Gagarin News wrote that seasoned investors are still interested in crypto.
