December 2, 2021

What do cryptocurrency exchanges earn?

Cryptocurrency exchanges are one of the few cryptocurrency companies that manage to remain profitable even in in 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 mostthe profitable source of profit is the commission that the exchange receives from trading assets on its site and from their withdrawal. Huobi Global Executive Director Livio Wen Xiaoqi in January 2019 said that it is precisely the transaction fees that make up Huobi's main 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 fees, trading usersplatforms pay asset withdrawal fees. The size of these fees depends on many factors: the asset in which the conclusion is made, the amount of funds, the method of transfer. Some trading platforms prefer to take a fixed commission for withdrawing funds, and some - mostly little-known and young crypto exchanges - completely refuse this collection, 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.

“Today, even in this bear market, we continue to run 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 is access to investors and liquidity. After adding large crypto exchanges to the listings, prices for such coins usually skyrocket.

But large cryptocurrency exchanges prefer either to deny such an income item, or to 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

In early 2019, Binance Launchpad resumedwork with the offer of BitTorrent tokens that were not sold publicly before. The token sale was completed in 18 minutes, during which 59.4 billion BTT tokens were sold and about $ 7.2 million was raised. This method is called Initial Exchange Offering - with an explicit 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 IEO came from four crypto exchanges - Bitforex, Coineal, Exmarkets, and ProBit. Estonian Exmarkets charges 2 BTC for conducting IEO ($ 20,000 at the current market price), according to screenshots of correspondence between the exchange and one of its customers. Probit requires up to $ 18,000 in fiat and another $ 18,000 if IEO succeeds. One can only guess about the cost of IEO at large sites - such as Binance Launchpad and others - then 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.

“OTC trading is essentially speciala platform for those participants who do not want to light up, - explains Sergey Yesipov, co-founder of the British cryptocurrency exchange Bitlish. “But this does not mean that these are two completely isolated worlds.” Bitlish, for example, has a service of quotation glasses, in which not only exchange, but also OTC orders, so-called OTC orders, flow together, 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

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