How Do Cryptocurrency Exchanges Make Money?

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In the early crypto days, there were only a few cryptocurrency exchanges in existence. However, the industry currently boasts more than 300 trading platforms, according to data on CoinMarketCap. 

While people looking to choose from a wide array of exchanges will welcome the diversity, the availability of numerous trading platforms may present a problem of choice for others. With the increase in the number of existing cryptocurrency exchanges, one would know that there is lots of profit attached to this line of business. 

Income generated while running an exchange, takes care of the firm’s operational cost, including payment of staff salaries, providing the necessary tools and services, etc.  

Without further ado, let us examine the ways cryptocurrency exchanges make money that has continued to entice more firms into joining the business. 

  1. Trading Fees 

Receiving trading fees or commission is the primary way exchanges make money. Users are charged a fee for every transaction on a platform. While these firms can charge as low as 0.1% for every transaction, it can account for more than 8-figures daily when this amount is accumulated, especially on cryptocurrency exchanges with large trading volume. 

Trading firms usually lower their fee to attract more clients. After all, when there is an inflow of more users, this helps boost the exchange’s transaction volume, as it is one of the top criteria considered when choosing an exchange. 

  1. Listing Fees 

Although crypto firms claim that listing cryptos depends solely on careful analysis of the project’s background, sometimes it depends on how much the developers of a coin are willing to pay before going live on a platform. 

Cryptocurrency exchanges make money via new coin and token listing, especially from unpopular projects. The developers pay a percentage of fee before they can be listed for trading. 

The amount of fee paid mostly depends on the popularity of the exchange among crypto enthusiasts. For instance, the developers of Akropolis (ARK) coin may incur a high cost to be listed on Binance or Coinbase, and the same project will pay a meager sum to be added for trade on small exchanges like Beaxy, among others.  

Listing fees are mostly paid in cryptocurrency, especially bitcoin (BTC), or the project’s native cryptocurrency. 

  1. Market Making 

A market maker is an individual participant or firm who buys and sells cryptos on its platform at prices available on its trading system to profit from the bid-ask spread, especially when the asking value outweighs that of the bid. 

Market makers create buy and sell orders for cryptos. Once the exchange receives an order from a buyer, the exchange sells off its position and vice versa. While this process is considered as one of the most lucrative means cryptocurrency exchanges can generate income, it helps boost liquidity and facilitate a smooth flow of the market. 

It is noteworthy that If exchanges do not engage in market-making, there may be minimal transaction and decreased investment activity. 

  1. IEOs, STOs, & ICO Commision Fee 

When new crypto projects use an exchange for fundraising via Initial Exchange offerings (IEO), Security Token Offering (STO), or Initial Coin Offering (ICO), the exchange gets a commission from the total sum raised. 

For a trading platform to profit via this approach, it would need to integrate a module that allows new project developers to organize token sales and also publish online trading news about the project to potential investors. 

When the fundraising is complete, the exchange is given a percentage of the total amount generated. 

  1. Launch Of Native Cryptocurrency 

In recent times, exchanges do not want to be known as mere facilitators of trades as they also desire more from the crypto space. C

ryptocurrency exchanges are constantly developing their native cryptocurrencies and conducting fundraisers, amounting to tens of millions of dollars to support the project’s growth. 

So far, trading platforms that have created their cryptocurrencies include Binance, KuCoin, OKEx, among others. 

Conclusion 

Running a cryptocurrency exchange is a profitable venture. Firms that delve into the business niche in the early stages of crypto have recorded substantial gains and are still poised to achieve more success. 

Regardless of the amount of revenue attached to the industry, launching an exchange can be tasking. If the operators are not careful, they may become a victim of financial enforcement action and then lose it all.

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