7 Methods How Crypto Exchanges Make Money
In the beginning, the only way to obtain Cryptocurrency was to either Mine it or Buy it from someone willing to sell it to you directly. As a result, people started looking for simpler and safer means of accessing Cryptocurrency. This was when the early Cryptocurrency Exchanges entered the fray.
Cryptocurrency Exchanges allow Crypto traders to buy and sell Digital Currencies. Over the last decade, the platform has acted as a transaction medium for Crypto traders and investors, generating billions of dollars in trade volume. In a nutshell, Cryptocurrency Exchanges play a crucial role in the Cryptocurrency industry.
Crypto users trade in a very liquid and flexible market because of the technology that underpins these Exchanges. Given how rapidly the currencies are exchanged via the liquidity factor, they do not encounter situations in which one virtual currency outnumbers the other. During a rapid movement, the Cryptocurrency Exchanges ensure that liquidity is maximized to allow smooth trading.
Many large Cryptocurrency Exchanges dominate and make the best of both worlds — financial and trade volume. The following are a few of the largest Crypto Exchanges in terms of 24-hour trading volume ($USD Billions):
Cryptocurrency Exchanges are managed by teams ranging in size, from start-ups to large global corporations. Some Exchanges are open to the public, while others are accessible to those who have been invited. Regardless of the Exchange’s status, it is a business that exists to make money. According to Bloomberg, the top 10 Crypto Exchanges make as much as $3 million a day. Given that Cryptocurrencies did not exist until 2009, an income of this magnitude is simply astounding compared to the historical growth of other industries.
Even though it is difficult to determine how much money they make to run and keep their complex operations afloat. Here are some tricks used by the majority of Cryptocurrency Exchanges.
- Trading Commissions
The widespread monetization technique for Crypto Exchanges is to charge commissions on trades. It effectively acts as a service fee for brokering a trade between the seller and the buyer. Commissions can be as low as 0.1 percent per transaction, resulting in high trading volume due to low trading costs.
Many large Cryptocurrency Exchanges adhere to the mantra of focusing more on Transaction Volume and a little less on Income per Transaction. It is the most lucrative method for Exchanges to reap higher benefits.
2. Listing Fees
Early-stage Cryptocurrency Exchanges will inevitably struggle with menial volume; thus, they cannot rely solely on trading commissions. Nevertheless, despite low trading volumes, many Exchanges have raked in billions of dollars in Listing Fees.
Crypto Exchanges can offer the service of listing tokens and coins on their platforms in order to generate initial revenues. Exchanges can benefit from the percentage of funds raised by the Initial Coin Offering (ICO), Security Token Offering (STO), and Initial Exchange Offering (IEO).
3. Market Making
Another significant source of revenue for Cryptocurrency Exchanges is liquidity for specific financial instruments. The process of Crypto selling and buying on an Exchange at somewhat lower prices than other Exchanges is known as Market Making.
It involves placing a new deal that cashes out the initial trade difference as soon as you conclude the trade on your Exchange. This strategy works remarkably well when automated, especially in markets with significant spreads.
4. Fund Collection Through IEO, ICO, and STO
Adding an IEO/ ICO/ STO module to the Crypto Exchange can also help to generate income. The approach establishes a system that operates similarly to Crowdfunding by allowing contributors to receive tokens for BTC or ETH before going to an Exchange. Then, as a fundraiser, when they collect funds on behalf of the company, they charge a percentage of the total proceeds as a fee. Depending on the overall amount raised, it could result in a significant dividend for the hosted Exchange.
Also Read, Top 10 Cryptocurrency Exchange In India
5. Deposit Fees
Cryptocurrency Exchanges charge a fee for transferring currencies, also referred to as a Deposit Fee. This transaction fee differs from the fee you pay when you Buy or Sell through Exchange. Deposit involves purchasing Crypto from a Cryptocurrency Exchange. Because you give your money to an Exchange, you must pay fees for their service. This means that if you trade on margin, you will be charged an additional fee.
6. Withdrawal Fees
When you withdraw Cryptocurrency from your wallet, the Cryptocurrency Exchange will charge you a withdrawal fee. Withdrawal fees may vary for each Exchange. However, many Exchanges provide an option to pay a flat fee or a percentage of the money you want to transfer.
Many large Cryptocurrency Exchanges also profit from advertisements. When the Exchange gains traction, it is natural for the platform’s user base to grow, resulting in substantial user traffic. Furthermore, this opportunity enables Exchanges to post ads on their platforms. Charging fees to third parties while publishing advertising on the Exchange is one of the simplest ways to make money.
As Olawala Daniel said, “Innovation is not always liked in its early stage until it becomes a public point of discussion and interest. Bitcoin was like the Internet of the early 20s, and today we all use it. Most aspects of our lives revolve around the internet, the same way blockchain technology and other decentralized apps (DApps) will become mainstream solutions to our world in the future.”
Thus, Crypto Exchanges play an important role in the potential attributes of Cryptocurrency. It has been over a decade since the introduction of Cryptocurrency and Blockchain, and it has already proven to be a game-changer. The Industry has not only gained recognition, but has created various other opportunities, such as DeFi, NFTs, Dapps, and many more. The right planning and execution in every aspect of the Crypto Industry could someday be a breakthrough for Evolution.
Disclaimer: The author’s views and opinions are for informational purposes only and do not constitute financial, investment, or other advice.