Have you ever thought about how crypto exchange make money? When I am writing this article, one thing I am observing globally is that most people are showing interest in investing in cryptocurrencies.
According to The Economic Times the data reveals a remarkable shift in Indian cryptocurrency investments. In April 2020, the total investment by Indians amounted to $923 million, but by May 2021, this figure had surged dramatically, marking a staggering 612% increase to reach an impressive $6.6 billion. Certainly a massive growth!
Intriguingly, another fascinating data from the USA. According to a report by Nasdaq, as of May 14, 2021, 46 million Americans own Bitcoins. It constitutes approximately 17% of the adult population. All these transactions conducted through cryptocurrency exchanges, the question naturally arises: how do crypto exchange make money?
This article reveals the secret behind making money through cryptocurrency exchanges. Before diving deep into the topic let’s have a gist about what is crypto exchange.
What is a Cryptocurrency Exchange?
Cryptocurrency exchange serves as an intermediary platform, facilitating users to buy/sell digital assets like Bitcoin, Ethereum, Dogecoin, and more. These exchanges act as a bridge connecting buyers and sellers within the digital asset ecosystem.
Two types of transactions can be done on the exchanges.
- Fiat currency to cryptocurrency
- Cryptocurrency to Cryptocurrency
From this transaction let’s see how do crypto exchange make money?
How do crypto exchange make money?
Trading Commission
The primary source of revenue for cryptocurrency exchanges is generated from trading commissions, typically amounting to fractions of a percent for each transaction. However, even with an average fee as low as 0.1–0.2%, when multiplied by the daily trading volume. It translates into a substantial share of their profits.
For a steady income, the exchange platform requires real users. The most famous exchange platform has a trading volume ranging from $100 million to an impressive $1.5 billion. For example, on Binance for BTC/USD pair the average daily turnover will be roughly around $300 million, with a fee of 0.1%, which translates to a daily revenue of $300 thousand. This calculation is just for one trading pair. So there is a diverse portfolio of income-generating opportunities for the exchange.
Listing Fees
Major cryptocurrency exchanges charge fees ranging from $2 to $5 million for listing new coins on the exchange. In some cases, the charge may even be high ranging from $10-15 million. The listing price is not standardized; instead, it is assessed on a project-specific basis, based on service packages like marketing promotions, specialized technical support, or some other services.
Market Making
An additional significant revenue stream for cryptocurrency exchanges is generated from the provision of liquidity for specific financial instruments. Market making involves the buying and selling of digital assets on the exchange, typically at prices slightly below those on other platforms. With each trade’s closure, another transaction is initiated, capturing the profit in the price differential as the trade progresses. This technique is applicable to markets with large spreads.
For instance, if you aim to introduce a distinctive offering like a BTC/THB (Thai Baht) trading pair on your exchange, one that isn’t readily available. For this, you can develop an automated system that combines the BTC/USD and USD/THB pairs, thereby creating a unique BTC/THB price feed. This innovative approach allows you to showcase the BTC/THB pair as a standalone trading option on your exchange, setting it apart as a unique selling proposition.
Undoubtedly, this offering will enhance the exchange’s reception and bolster trading volumes within Thailand, as users find it considerably more convenient to transact in their native currency, THB, versus USD. Moreover, this adaptable solution can be seamlessly implemented with any other currency instead of THB, making it a versatile approach to cater to diverse market preferences.
Fund Collection for IEOs, STOs, and ICOs
Another effective strategy to bolster exchange revenue involves integrating an IEO module, enabling other companies to organize token sales on the platform. In this case, your exchange functions as a secure repository where individuals can purchase tokens before they are listed on a trading exchange, resembling the crowdfunding model employed by Kickstarter. Here the contributors can acquire tokens in exchange for various digital assets, such as BTC or ETH, enhancing the versatility of the fundraising process.
Now you may have the question, how crypto exchange make money in this process? The exchange generates revenue by levying fees on the funds collected for the fundraising company. These fees are typically calculated as a percentage of the total proceeds. Depending on the final amount gained through the token sale, this percentage can translate into a substantial income stream for the hosting exchange, making it a lucrative aspect of their business model.
Other Services
Cryptocurrency exchanges can diversify their revenue streams by offering enticing services like staking, lending, and a crypto marketplace to their users. In the context of staking, individuals lock their cryptocurrencies in a wallet to actively contribute to the operations of a blockchain network and, in turn, earn rewards for their participation. The exchange, in this arrangement, secures the income by either charging a fee or generate a percentage of the staking rewards that are generated by the coins users have entrusted for staking on the platform.
Lending services on crypto exchange allow users to lend their digital assets to either other users or institutional borrowers for interest. These exchanges play a pivotal role as intermediaries, seamlessly connecting lenders with borrowers and facilitating the lending process. In this way, the exchange makes a profit by charging a fee.
As an alternative revenue stream, cryptocurrency exchanges can offer a crypto marketplace where users engage in the buying and selling of various assets. These dynamic platforms facilitate transactions involving cryptocurrencies, as well as more conventional products like Bitrefill gift cards and mobile phone refills. To initiate their operations and generate income, trading fees, which can be structure as either a percentage of the transaction volume, ensuring a consistent source of revenue for the exchange platform.
Take Away
Crypto exchange platforms are the foundation for cryptocurrencies, and it is profitable even though the market fluctuates. For an entrepreneur who wishes to step into the crypto exchange business will be a good start and also provides high ROI.
Entrepreneurs you must be wise enough to choose the best crypto exchange development company like Zodeak which is ready to offer services in a budget-friendly way and is also known for its experience. To know more get a free quote and kick-start your business!!!
