On-chain segmentation: Unlocking insights for the region’s rising crypto exchanges

The region’s crypto appetite is growing. In 2022, the Middle East and North Africa’s crypto transaction volume grew 48 per cent over the previous year’s activity, compared with 36 per cent for North America.

That left MENA as the world’s fastest growing crypto market by transaction volume. It is easy to see why. The expat communities of many of the region’s countries are also predominantly digital native, allowing for a more accepting attitude to the crypto proposition.

Governments of countries with large expat communities such as the UAE are also taking an interest, exploring avenues for financial services such as remittances. After all, cross-border payments feed their GDPs.

For example, in Egypt, where remittance payments account for about 8 per cent of GDP, the central bank is collaborating with UAE-based authorities to create a remittance corridor between the two countries. And it is using blockchain technology to do it.

Saudi Arabia and the UAE are both top five countries by cryptocurrency value received between July 2021 and June 2022 and Dubai has become a major hub for crypto companies, which now facilitate transactions throughout the region, including territories across Asia and Africa.

And right now, we see signs of the crypto winter thawing.

So, how do exchanges survive and thrive in an increasingly competitive market? How do they appeal to the digital natives hungry for alternatives to traditional finance? How can exchanges win over the shrewd, discerning, digital-savvy wallet-holders and win market share? And how do they turn that into a bumper harvest in the spring that follows the crypto winter?

Know your audience

When transaction volumes begin to pick up again, how do you come up with a winning strategy that will gobble up a bigger share of that wave than others? By doing two things. First, recognise that not all users are the same. Second, leverage that knowledge and deploy the right technology that allows you to get to know the behaviour behind the wallets. In any other industry, greater insight translates into greater advantage. Why should it be any different in the crypto space?

The key lies in segmentation, a tried and tested growth tactic in industries ranging from retail to banking. The principle is straightforward enough. You sift through data to find large groups with similar attributes, needs, challenges and habits. You then craft a message that appeals to each group, thereby making each message more effective than the standard blanket marketing spiel. Industries spend big on segmentation, mining data under the guidance of marketing and other business teams who are under pressure to ensure returns outstrip investment.

This is where crypto businesses have an advantage. The inherent transparency of the blockchain allows exchanges to segment more effectively than other industries can.

In retail, for example, marketing teams have to come up with ways of harvesting data or risk having to wait for the right data (or, indeed, enough data) to come to them. In the cryptocurrency world, a business can see the holdings, transaction activity, and product preferences of its users and prospects in real time. Armed with that data, exchanges can make data-driven decisions that are simply not possible for those in other industries. They can strategise about where to focus their user acquisition and retention efforts more granularly than a traditional bank or a retailer.

Chain reaction

On-chain segmentation can use many different attributes to categorise crypto wallets but let’s take a look at holdings and wallet age. And while you can come up with many different segmentations, here is a practical example of how clientelle can be grouped into six distinct categories using these criteria:

● Our first will be wallets active before January 1, 2020 with holdings below $10,000, and we shall call this “early retail”.
● The second is “early professional” (active before January 1, 2020 with holdings between $10,000 and $10m).
● Third is “early institutional” (active before January 1, 2020 with holdings greater than $10m).
● The fourth, fifth and sixth are “late retail”, “late professional” and “late institutional” — wallets with the same amounts as the subsequent “early” segments but which became active on or after January 1, 2020.

Exchanges that look at the customer base in ways that are like, or similar to this, are more in control of their futures than those that plough on, relying on instinct. Wallet-based user segments bring great benefits to exchanges and the people running them. By translating the activity observed in each segment, exchanges can come up with more effective acquisition and retention strategies.

Segmentation works well for exchanges looking to understand a little more about how their users engage on the blockchain. In just the six segments we chose here, we can appreciate the enormous differences that holdings and circumstances bring to the decisions made by crypto users — from the individual to the institution and from the veteran to the rookie.

The inherent transparency of blockchains sets crypto companies apart from those in other industries. This is an incredible advantage to the region’s start-ups who are operating in this space. Strategy, marketing, product development — all are improved through segmentation, leading to a maximisation of the value of each user.

By also factoring proprietary data such as orderbook activity into the analysis, insights become even more powerful. As Web3 emerges ever stronger, crypto will be a mine of value. Those that act now on segmentation have an opportunity to rise quickly and go far.

Nicola Buonanno is the area VP Southern EMEA at Chainalysis

Also read: Where is crypto headed in the next 5 years?