The Return of the Exchange (from iGB)

This article was originally posted in iGaming Business: Issue #108. Learn more and subscribe at http://www.igamingbusiness.com/.

The betting exchange has taken a backseat since the Paddy Power – Betfair merger. Toby Lynas from the Peerplays Blockchain Standards Association on how blockchain technology can be used to reinvent the betting exchange and offer a product closer to how it was originally conceived.

When Betfair first launched back in 2000, with a new exchange product that promised to completely revolutionise the sports betting sector, many predicted the days of the traditional sportsbook were numbered.

The exchange model offered up a number of features that, on paper at least, posed a serious threat to sportsbooks. It could operate on tiny margins, there was no need to limit winning players, and from a marketing perspective, it could be presented as an alternative to unscrupulous bookmakers.

However, almost two decades on from Betfair’s launch, the exchange remains a relatively small vertical, while traditional sportsbook goes from strength to strength. It begs a simple question: what went wrong?

Back to basics
In many respects, the exchange as a betting vertical has lost its way as it has deviated away from its core USPs and gravitated closer to sportsbook.

Commissions have risen, operators have generally looked to push punters away from exchanges and towards sportsbooks, and the reams of data generated have been kept under lock and key.

The original exchange proposition was predicated upon some basic principles, particularly the decentralisation of the betting process.

The reality has played out very differently. Liquidity requirements have meant exchanges are controlled by a handful of gatekeepers, very much against the P2P spirit on which they were first founded.

In the two decades or so since the first betting exchanges emerged, and particularly in the last couple of years, advances in tech have offered an opportunity to better create an exchange proposition that matches this vision.

Open source betting
In 2018, a host of gaming platforms built on blockchain technology will launch across the verticals, from poker to casino to lottery.

But the vertical best placed to utilise the disruptive power of the blockchain will be the exchange.

By creating an open source betting exchange that sits on the blockchain, it is possible to offer bettors a perfectly secure medium that is provably fair and completely transparent. And this can all be achieved in real-time.

The benefits of this can’t be understated; one interesting use case will be how it can link to sports’ governing bodies, allowing them to build products that link into this data to help the fight against match-fixing.

The question is whether the blockchain can reboot the betting exchange and bring it to a new audience.

While exchanges have never been for the casual punter, a blockchain-based exchange has the potential to reach younger, tech- and value-savvy customers who are turned off by the traditional sportsbook offering.

This demographic tends to value anonymity, security, transparency and speed, and these tenets are the core of what blockchain technology can offer.

For instance, when Bookie, a new exchange built upon the Peerplays blockchain, launches next year, the focus will be to provide a product that recaptures the essence of the betting exchange.

There is still a significant opportunity in the increasingly fragmented global market for such a product, especially as it stands distinct from traditional sportsbook offerings.

If Betfair’s launch of a sportsbook and its subsequent merger with Paddy Power marked the end of the first chapter in betting exchanges, the blockchain offers an opportunity to open a new one.

But it will only be successful by staying true to the original principles of the betting exchange and offering a truly open product that will return the vertical to its previously vibrancy.

Toby Lynas is head of operations at the Peerplays Blockchain Standards Association, a non-profit organization dedicated to promoting provably fair gaming standards for the Peerplays blockchain. He was previously a professional gambler for more than a decade.