Why Kriptomat has the winning formula for a centralized cryptocurrency exchange

How LAUNCHub Ventures sees the crypto exchange marketplace today

We were the first institutional investor to really get into the Crypto space back in 2014, when we invested in the Bitcoin processing service Cashila. Since then, we’ve been closely monitoring the space and looking for new investment opportunities in the SEE space, particularly as we’ve come out of the long crypto winter.

In 2020, we saw market conditions changing such that a centralized crypto exchange might finally be ready to become widely adopted by consumers. But to understand this moment in the crypto space and why we decided to invest in Kriptomat, you first need to understand the market conditions as we see them.

Centralized vs decentralized exchanges

Centralized exchanges are trusted third parties which handle transactions and manage assets. By contrast, decentralized exchanges have no third party and rely purely on P2P trading over the blockchain. The most relevant distinction in our case is that these differences make centralized exchanges more friendly for new crypto users because they have a trusted third party to help them through the process.

The biggest recent shift we’ve seen has been from centralized towards decentralized exchanges. At the same time, centralized exchanges are unbundling with more users focusing on getting specific features out of them. As a result, custodianship, onramps, and other key elements are moving to other platforms. This means centralized exchanges are losing the momentum of being the first touchpoint most users have with crypto.

Why LAUNCHub Ventures supports centralized exchanges

Despite the growing popularity of decentralized exchanges, we still see centralized exchanges as the key players for growing the overall cryptocurrency market. The forces pushing the decentralization of exchange features may serve some benefits to established players, but it makes entering the crypto space even more difficult for new users.

Ultimately, cryptocurrency holders still make up a small group relative to investors in other asset classes. We see a future in which more and more people will begin using cryptocurrencies and in these cases you want a centralized exchange which eases the transition into using cryptocurrencies. That’s where Kriptomat comes in.

What Kriptomat does differently

Kriptomat’s approach begins with their #EverybodyDeservesCrypto vision. From that, their broad strategy is to make their platform easier to use and more secure, enabling more everyday people to use cryptocurrencies. This is because, despite the shift to decentralized exchanges, if cryptocurrencies are going to establish themselves as a more common asset class they need an effective onramp for new users. The same goes for establishing more use cases for cryptocurrencies. Based on these needs, Kriptomat is optimizing itself as the first touchpoint of new users.

So Kriptomat’s value begins with better onboarding, but their focus then shifts to improving customer retention through adding asset classes and use cases, and by making sure users can anonymously participate in the governance of token projects. Ensuring that once customers are onboarded and comfortable with the basics of trading crypto that they have a steady influx of new opportunities to invest and participate in coin projects is key to turning those new customers into loyal customers.

Thus on the whole, Kriptomat is working to be a friendly, open, and easy to pick up onramp into the crypto space while combining this with a deep bench of features to retain users and keep them engaged.

How Kriptomat got to its investment with LAUNCHub Ventures

We were introduced to Kriptomat in 2020, just at the moment we were looking for new investment opportunities in the crypto space. So, we quickly began actively working to get to know the company, its strengths, and how it can develop further. It should come as no surprise that the Coronavirus pandemic then came into play.

Not being able to meet the Kriptomat team in person meant that it took longer to develop a relationship. After a few aborted attempts to meet in Kriptomat offices in Tallinn, Estonia, Serbia, and Ljubljana, Slovenia, we ultimately met in person in Athens during Summer 2020. Of course the Covid complications didn’t end there as the related restrictions also slowed down our due diligence. Fortunately though, Kriptomat took compliance very seriously, which aided the process. After all, compliance and due diligence are always critical for Fintech investments.

From Kriptomat’s perspective, LAUNCHub Ventures was a good choice as they’re not a pure crypto business and therefore wanted a more traditional VC partner to aid in other areas. We have the experience to help them improve, hiring, retention, and other critical non-crypto elements of their business. Our crypto experience was still important.

Going forward

At the moment, we’re closely watching how Kriptomat responds to the current crypto market volatility and how it might expand its financial offerings to further its mission of engaging and retaining customers.

Read more about our investment in Kriptomat in the media on our blog https://launchub.com/blog