Lightning Offers Growth Path for Emerging-Market Crypto Exchanges
While leading cryptocurrency exchanges like Coinbase and Binance feverishly add new tokens, smaller exchanges serving emerging markets are pivoting toward retail applications of the lightning network’s bitcoin scaling solution.
The latest is Singapore-based exchange Zebpay, which now offers lightning wallet options for users who want to send lightning-enabled payments to external wallets.
Bitcoin users can cash out their crypto directly to make a nearly instant payment to any lightning-friendly wallet. For now, Zebpay will enable this feature by handling all the channels to recipients on the back-end.
“Next comes allowing people to create invoices,” Zebpay CEO Ajeet Khurana told CoinDesk. “Giving them greater control over channel management, state management, recovery, routing. All of this is done by us. We will keep releasing more functionality so that users can actually take control of how they are doing things.”
This stands in stark contrast to the broader industry norm, which often considers lightning too experimental for retail users. Representatives from larger platforms like Coinbase, BitMex, Kraken and OKEx all told CoinDesk they won’t incorporate lightning in the near future.
In contrast to the above-mentioned platforms, Khurana said Zebpay has a smaller monthly user base of a “few hundred thousand” – which could still make the company’s new lightning wallet one of the more widely used options on the market (BlueWallet, by comparison, has seen 20,000 downloads to date).
Demand for the product may also benefit from the fact that nearly a million Indian Zebpay accounts holders can’t cash out in fiat due to an unclear regulatory landscape that discourages Indian banks from cooperating with crypto companies.
“I cannot imagine greater pain for an organization,” Khurana said, referring to the choice to shut down the Indian fiat-crypto exchange and shift Zebpay’s focus to other markets and services. He described this shift as basically having to “start over” again. Yet despite these challenges, Khurana remains bullish on the global bitcoin industry.
“It is very, very exciting,” Khurana said, adding:
“We are still in the early stages, of [lightning] implementation. But as far as capabilities are concerned, that question of whether bitcoin can actually support the volume of transactions that would emerge from a global monetary system, that [question] has now effectively been put away.”
Lightning now is part of the exchange’s strategic plan for expanding beyond simple exchange services. This wallet functionality is the first step.
Khurana told CoinDesk he is also interested in offering a variety of lightning-enabled services in the future, such as payment processing. This may prove to be especially important since Khurana said the vast majority of Zebpay users at in-person events have indicated they “didn’t have exposure to other asset classes” like stocks or real estate.
Global use cases
Although Zebpay may lead the way for Indian bitcoin users who are learning about lightning, it isn’t the first exchange to prove lightning integration can prove commercially viable.
The Chile-based bitcoin exchange Buda, a small exchange facilitating roughly $200,000 in daily transaction volume from around 1,500 monthly users, enabled this same payment feature last October. Buda software engineer Alejandro Echeverría told CoinDesk 100 customers have used this lightning feature so far and, from integration to channel management, the additional cost to the exchange has been less than $5,000.
Much like Zebpay’s Indian users, Buda’s users in Colombia often find that banks won’t allow them to purchase bitcoin or interact with crypto companies.
Plus, Venezuelan expats in Peru, Chile and Colombia may all need to send bitcoin without relying on Venezuelan banks. Lightning wallets make these transactions much cheaper than regular bitcoin transactions, helping users overcome liquidity issues.
“Some users used Bitrefill to send money to Venezuelan mobile accounts, to top off their family cell phones,” Buda co-founder Agustín Feuerhake told CoinDesk. “It’s a lot easier if you have your bitcoin on an exchange than running your own [lightning] node or opening channels.”
Feuerhake went on to say his exchange will add both mobile lightning options and the ability to receive payments within the next few months, followed by an experimental roll-out of merchant payment processing services later this year for small businesses such as hairdressers.
“Most of the users are more concerned with making [bitcoin payments] fast and easy,” Feuerhake said. “We received interest from large merchants. But we will start with smaller businesses with a simpler view of accounting.”
Both Khurana and Feuerhake agreed that the current crypto industry is oversaturated with exchange options. From their perspective, companies that are able to offer services, such as mobile wallets, institutional custody and payment processing, will succeed in the long-run.
“Who among the exchanges will remain competitive?” Khurana asked. “I think these are going to be the ones that innovate.”
Ajeet Khurana image via Zebpay