Crypto exchanges can stay afloat and profit even during business depression, in contrast to financial investors and private actors. This results from the essence of crypto exchanges to form the market and stimulate the trade. Today, we will discover how much these platforms earn, find out about their income streams and get an insight into their peculiarities.
A cryptocurrency exchange is a site for traders to buy and sell one digital currency for another, digital or fiat. It is a way to get crypto, apart from mining and air drop. The most known platforms are Binance, Kraken, Huobi, OKEx. To learn more about the functionality of such environments, see cryptocurrency exchange software by Merkeleon and How To Start Your Own Crypto Exchange In 2023?
In its analysis, Blockchain Transparency Institute (BTI) researches how much crypto exchanges make, from the perspective of transactions conducted by real users, not trading bots whose impact can amount to 70%. So, if the average number of daily operations is 27,000, the average volume of these transactions is $2,503, then the total average income is about $67.5 million.
This may seem an overly optimistic scenario, especially for emerging unknown sites, so they take an exchange with a minimum number of users, Bisq, with 394 clients, and a minimum transaction volume per active user from Coinbase, $189. As a result, BTI totals $75.5 thousand in daily transactions.
Well, it’s time to find out how the world’s crypto exchanges revenue. Profit here is the balance between income and expenditure for, say, service maintenance, promotion, liquidity support, taxes. Let’s move on to the details.
It is the main revenue stream that crypto exchanges. Trading commissions amount to tenths of a percent for one transaction. Nevertheless, if we take an average fee of barely 0.1–0.2% and multiply it by the daily trading volume, we will find a share of profit.
To bring fees and consequently steady income, active trading requires suitable conditions; a major prerequisite are real users. There exists a whole lot of other mechanisms that trigger trading activity, agreed, like market makers and trading bots. Nevertheless, it is only live clients that fuel service fee, thus gaining.
The trading volume on heavyweight platforms extends from $100 million to $1.5 billion. The rough turnover on Binance for BTC/USD pair averages $300 million. With a fee of 0.1% we can figure out that it brings $300 thousand per day. And it is only one trading pair out of an extensive income inventory.
Major crypto exchanges collect from $2 to 5 million for listing a new coin to traded cryptocurrencies. Some may even charge up to $10-15 million. There is no average listing price: it is rated for each project individually, judging from the intended service package, which may involve, for example, marketing promotion or technical expertise.
For evolving crypto projects, listing on a big platform means increased popularity and quicker entry to investors. Moreover, after listing, these coins rapidly grow. Fun fact, heavy crypto exchanges opt either to conceal this revenue item, or show off their reluctance to list third-grade coins, named “shitcoins”, on no account.
Market making (MM) function enables high-quality liquidity and uninterrupted execution of orders. It supports quoted prices in a certain range, provides additional liquidity and prevents price gaps. For example, a user buying an altcoin to sell it on an illiquid exchange, makes a sale order. Hence, the asset is instantly bought.
Clients might think that transactions quickly occur between regular traders. But in most cases, it is market makers that purchase orders for further resale. MM is available on each site and guarantees liquidity. In a reverse situation, traders would wait weeks before they came across at a buyer.
Margin trading or leverage involves a trader who borrows money from the exchange to increase their purchasing power, with the potential for higher profits and, essentially, higher risks for a trader. The mechanics of such device is closely related to financial loans. Yet, it is a misconception to think that a client remains in debt if their forecast malfunctions.
The exchange’s leverage basically adds the order volume. A trader will lose no more than they have, and the exchange won’t fail either. If a trader has $10,000 on their account and chooses to buy bitcoin in the hope that it will rocket in future, with x5 leverage, they can buy bitcoin for $50,000. Should the rate decline and bitcoin go cheaper, the exchange will usually stop at a client’s $10,000 and notify them with a margin call, or vice versa.
Bear in mind that it is then reasonable to launch the module when the operator has already accrued some trading volume, has enough active users and massive capital for liquidity and reserve, since this activity is directly linked with the risks of customers’ non-payment.
So, what elements govern the gainings of cryptocurrency exchanges? How much money do crypto exchanges make? The bottomline, that you might have already deduced, lies in active traders who bring a steady yield. If you wisely assess risks and properly deduce several scenarios, even during a stagnant market, you can keep your exchange well operating and profitable. Learn what AML/KYC in crypto looks like.