As a co-founder and CEO of Thalex, I often ponder the question: what’s stopping blockchain networks or crypto platforms from becoming super brands? In theory, nothing. That’s why you frequently hear industry chatter about how plateaus in adoption are temporary embarrassments due to macro-market factors or audience mismatches.
A Great Brand is Not Defined by Awareness Alone
A great brand is not defined by awareness alone but by customer captivity. This core insight comes from Bruce Greenwald’s book, "Competition Demystified". In answering the question of how to build a captive customer base, Greenwald suggests playing to at least one of three core tenets of demand-based competitive advantages: habit, switching cost, and search cost.
Crypto Companies Embbody All Three Core Tenets
Many crypto companies, namely exchanges, that are well on their way to becoming household names have a distinct advantage here: They embody all three. They are super brands in the making. Let’s take a closer look at each of these tenets and how they apply to crypto exchanges.
Habit
The most critical driver of customer captivity is habit — those who use a product without thinking twice or considering the competition. In the early days of crypto, habit formation was limited. The space innovated too quickly, and customers looked for new exchanges that would be quickest to list new coins.
However, once perpetuals started to dominate as the preferred instrument to trade and stablecoin settlement opened up the path to altcoin perpetuals, habit formation became a significant competitive advantage. Trading volume and customer bases grew, and so did regulatory intervention and the widespread implementation of KYC protocols for onboarding.
Switching Cost
Regulations impose restrictions on marketing, which increases search costs for challenger brands beyond the disadvantage of scale. Constraints like these drive the concentration of ‘top-of-mind’ awareness into a handful of exchanges.
There is an analog to the tobacco industry here. When regulations were enacted on how cigarettes and other tobacco products could be advertised, big brands slashed their marketing budgets and effectively all retained whatever market share they managed to obtain. They all simply became more profitable.
Search Cost
Unless a competing exchange offers something simply too good to ignore, most traders or crypto holders aren’t bothered to DYOR (do your own research) and transfer funds. That’s similar to how customers stick with their current bank or phone provider due to the hassle of switching.
The Exchange Paradox
Once a smaller exchange ‘cracks the code’ on what will drive users away from leading exchanges and entice them to pay the switching and search costs, they can scale quickly and start consolidating success. By breaking the habit factor that leading exchanges build with their user base and offering enough reasons for them to search and switch, competitors can grow their footprint exponentially.
However, once they reach the top, however, the ‘exchange paradox’ comes into play, and the cycle begins anew. For an exchange to break this cycle and become a super brand, it has to create a network effect that plays on habit, switch, and search costs to its advantage.
Remaining Proactive on Regulation
Retaining an entrepreneurial and innovative mindset is critical here, as those are the keys to staying ahead of competitors. Likewise, remaining proactive on regulation rather than adopting a ‘too big to fail’ attitude can help shrink the targets placed on the backs of market leaders.
No brand is invincible. Trust and habit are built on a millimeter-by-millimeter basis, so it’s up to exchanges to internalize this and move forward with that approach to win new users and keep them engaged.
Conclusion
In conclusion, becoming a super brand in the crypto space requires more than just awareness. It requires customer captivity, which is driven by habit, switching cost, and search cost. While some crypto companies have made significant strides in this area, there’s still much to be done.
As an industry, we must remain proactive on regulation and continue to innovate and adapt to changing market conditions. Only then can we break the cycle of the exchange paradox and create a truly sustainable ecosystem for blockchain networks and crypto platforms.
About the Author
Hendrik Ghys is co-founder and CEO of Thalex. Having transitioned to the crypto sector in 2017, Hendrik was instrumental in negotiating the acquisition of Bitstamp and served as chair of its board post-acquisition.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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