June 17, 2024

What do cryptocurrency exchanges earn?

Cryptocurrency exchanges are one of the few crypto companies that manage to remain profitable even inin case of a fall in the cryptocurrency market. In this material, we tried to figure out what are the sources of income for cryptocurrency trading platforms.

Crypto exchanges bring billions of revenue to theirto the founders. Even for the difficult year for the crypto market in 2018, they managed to stay in the black. Cryptocurrency exchanges have four key sources of income that allow them to receive money from both traders and other participants in the cryptocurrency world.

Trading Commissions

The most obvious and, in most cases, the most lucrative source of profit is the fees that the exchange receivestrading assets on your platform and withdrawing them.In January 2019, Livio Wen Xiaoqi, CEO of Huobi Global, said that transaction fees areHuobi's main source of income, declining to give a specific figure.

But about the income of crypto exchanges on commissions forTransactions can be judged by indirect indicators. According to the South Korean analyst Yung Yoon-ho from the investment company Yoojjin Investment, Bithumb only earns $ 2.5 million per day on transactions. To calculate the income from commissions, Jung used a simple formula: he multiplied the average daily trading volume by Bithumb in the amount of $ 2.5 billion on the average transaction fee, which Bithumb is 1%.

In addition to trading commissions, trading usersplatforms pay fees for withdrawing assets. The size of these fees depends on many factors: the asset in which the withdrawal is made, the volume of funds, the method of transfer. Some trading platforms prefer to charge a fixed commission for withdrawals, while some — mostly little-known and young crypto exchanges — and completely refuse this fee, thereby trying to attract new users.

Top managers of cryptocurrency exchanges themselves admit: even against the background of the crypto winter and the depreciation of cryptocurrency rates, cryptocurrency exchanges manage to stay in the profitable zone.

“To date, even in this bear market, we are still operating a profitable business,” — Binance CFO Wei Zhou told CNBC.

Listing

If about profit from cryptocurrency exchange trading commissionsat least somehow, but they say that most of them prefer to remain silent about this income item. In order for the cryptocurrency to be added to the list of traded on the site, large crypto exchanges can receive up to $ 2- $ 5 million. Ethereum co-founder Vitalik Buterin at the TechCrunch conference in July of this year accused the exchanges of an even higher price tag for listing - $ 10-15 million. There is no average price list for listing: an individual price is calculated for each project, and a set of services that projects need order to go through listing varies from exchange to exchange. Often it includes services for marketing token promotion and technical expertise.

For crypto projects, listing on a large platform — it is access to investors and liquidity. Once listed on major crypto exchanges, prices for such coins usually skyrocket.

But large crypto exchanges prefer to either deny such a source of income or emphasize that even for millions of dollars they are not ready to include “shitcoins” in their listings.

So, in early August, the co-founderExpanse blockchain platform Christopher Franco accused the cryptocurrency exchange Binance of requesting 400 BTC ($ 2.5 at the exchange rate for that day) for adding an Expanse token to the listing.

IEO

At the beginning of 2019, Binance Launchpad resumedwork with the offer of BitTorrent tokens, which had not previously been sold publicly. The token sale was completed in 18 minutes, during which 59.4 billion BTT tokens were sold and approximately $7.2 million were raised. This method is called Initial Exchange Offering — with a clear reference to both the traditional exchange term Initial Public Offering and ICO, which by the beginning of 2019 had already completely lost investor confidence.

IEO differs from ICO, first of all, in thatIn the case of IEO, the cryptocurrency exchange, which will conduct IEO, is partially responsible for checking the project for an obvious connection with fraudsters. The idea is simple: if it is a large world-famous crypto exchange, then it is not interested in being noticed in the marketing promotion of scam.

The price for IEO for the project ranges from a coupletens of thousands of dollars to hundreds and even millions. It all depends on the popularity of the platform, which is managed by the crypto exchange and on which IEO will take place, and on the set of services that accompanies the conduct of the token sale. The cost of IEO often also includes legal advice, marketing promotion and technical expertise.

According to analyst Larry Chermak, at the end of July45% of IEOs were accounted for by four crypto exchanges — Bitforex, Coineal, Exmarkets and ProBit. Estonian Exmarkets charges 2 BTC ($20,000 at the current market price) for an IEO, according to screenshots of correspondence between the exchange and one of its clients. Probit requires up to $18,000 in fiat and another $18,000 if the IEO is successful. About the cost of IEO on large platforms — such as Binance Launchpad and others — One can only guess that crypto exchanges of this level are more careful in selecting projects, valuing their reputation.

OTC

Separate platform for institutionalinvestors who place large orders to buy or sell cryptocurrencies are another source of income for cryptocurrency exchanges. Separate retail investors and institutional cryptocurrency exchanges due to the fact that large players, placing orders worth millions of dollars, can dramatically affect the course of trading, whipping up or collapsing the cryptocurrency rate. In addition, OTC trading involves more personalized and confidential services.

“Over-the-counter trading — it's essentially speciala platform for such participants who do not want to shine, — explains Sergey Esipov, co-founder of the British crypto exchange Bitlish. — But this does not mean that these are two completely isolated worlds. Bitlish, for example, has a service of quotation books, into which not only exchange orders, but also over-the-counter orders, the so-called OTC orders, are collected, which allows you to make transactions and conduct arbitration at a more favorable rate.”

OTC trading is in demand likeinstitutional investors and large asset managers, as well as those of miners: they need platforms where they could find buyers for large lots of mined cryptocurrency. Usually on over-the-counter platforms there is a minimum order size and it sometimes reaches hundreds of thousands of dollars.

A world without pink glasses

Despite such a variety of sources of income,and among cryptocurrency exchanges there are those who fail to stay afloat and maintain profitability during periods of a bear market. So, one of the largest cryptocurrency exchanges in South Korea, Bithumb reported losses in the amount of $ 180 million received for 2018. The main reason the company called the cryptocurrency market drop.

Posted by: futuretime