How Do Crypto Exchanges Make Money?

The increase in the number of cryptocurrency users globally matches the number of cryptocurrency exchanges springing up in different regions around the world.

Have you ever asked the question, how do crypto exchanges make money?

In this article, we go over the fundamental ways that crypto exchanges make money. Bear in mind though that there may extra revenue sources not included in this article and not generally known by the public, but only crypto exchanges operators.

How Do Crypto Exchanges Make Money?

1.Trading Fees

Nearly all cryptocurrency exchanges, including, charge a little fee for each trade you complete on the platform. The best exchanges charge a 0.25% fee for each deal and while this may seem like a small amount at first, it adds up to a large sum if you consider the number of people use the crypto exchange.

Some exchanges also have over-the-counter (OTC) desks where registered users can exchange cryptocurrencies directly without going through the order books. Fees are also attached to trades done through this channel.

The downline is, the higher the trading volume on a crypto exchange, the higher the revenue it can generate from trading fees both on its order books and OTC desk.

  1. Listing Fees

Apart from popular cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and a few others, new projects usually have to pay a fee to get listed on cryptocurrency exchanges.

Although rumors suggest that these fees can range between $50,000 to $1 million, these projects gain from it since listing on a popular exchange will mean that more people can buy their cryptocurrency, thus giving them more capital to pilot their business.

3.Deposit and Withdrawal Fees

Aside from the network fee charged for cryptocurrency transactions, some crypto exchanges have extra charges attached when you are moving fiat into their platform or vice-versa.

They often use these fees to facilitate bank deposits as well as settle accounts with third parties they partner with to handle fiat conversions.

4.Airdrops and Promotional Activities

Some crypto projects distribute their tokens free to users as a way to encourage people to use their coin. To do this, however, users need to have a crypto wallet that is compatible with the token they want to distribute.

To successfully carry out such campaigns, these projects could pay cryptocurrency exchanges some money to support the airdrop by adding the needed wallets to their platform. There is no cap for this type of fee since projects usually have to sign a non-disclosure agreement to when sealing this kind of deals.

5.Institutional Trades

Major venture capital firms and institutional investors do not go through a crypto exchange order books to buy or sell cryptocurrency because most of them prefer to stay anonymous. However, they purchase large volumes of cryptocurrencies that could move market prices either way.

Crypto exchanges make money by charging substantial fees for these institutional trades without necessarily including it as part of their visible trading volume.

Final Words

As mentioned earlier, there may be additional ways that crypto exchanges make money that only insiders know about. However, there would be no need to worry if they are making so much if they continue to deliver adequate security and a user-friendly platform for trading cryptocurrencies.

Comments are closed