How do crypto exchanges make money? This is a very common question that emerges in everyone’s mind before investing in cryptocurrency. Trading and investing in Cryptocurrency is very authentic among the public because there is no bank involved. About 18.8 people in Asia invest in cryptocurrency as a long-term investment.
Crypto exchanges are privately owned platforms to facilitate traders with different crypto assets, such as NFTs and digital and fiat currencies.
Catch? If not, then let me dig inside more. In order to understand how exchanges make money, you should have to look at what cryptocurrency exchange actually is.
What Is a Crypto Exchange?
We use an exchange as a medium for a convenient transaction of crypto and other crypto assets. Exchanges work as an assistant and assist you with some beneficial tools to buy and sell cryptocurrencies.
There are two major types of exchanges that exist:
1. Centralized Cryptocurrency Exchanges (CEX)
Centralized cryptocurrency exchanges connect buyers and sellers. This type of exchange works as a third-party broker and makes money through commission and transaction fees.
You can consider a centralized cryptocurrency exchange (CEX) the same as a stock exchange but for digital assets.
Popular Crypto Exchanges are Binance, Coinbase Exchange, Kraken, and KuCoin.
2. Decentralized Cryptocurrency Exchange (DEX)
Decentralized Cryptocurrency Exchanges allow Peer to peer (P2P) transactions from your digital wallet with no third-party or intermediary involvement
Examples of DEXs include Uniswap, PancakeSwap, dYdX, and Kyber.
How Crypto Exchanges Make Money?
There are various ways for an exchange to make money, but here are the few well know sources I describe:
Transaction/Trading Fees
Whenever you buy or sell any cryptocurrency or crypto asset, you’ve to pay a paltry amount of a cut. Exchange owners make money through trading fees. Usually, it depends on your trading size and trading count.
However, the trading fee also depends upon the supply and demand of a cryptocurrency/asset that you are trying to buy or sell.
Interest on Deposit
To extend the trading amount, some exchanges provide extra funds. If a trader wins a trade with the provided fund, the exchange deducts a minor interest to make money.
The interest percentage depends on your trading amount.
Advertising and Sponsorship
Because of the huge number of direct audiences on different exchanges. It’s very easy for exchanges to make money by advertising any product.
By Providing Additional Services
Providing additional services can extend the revenue of any crypto exchange. Different crypto exchanges provide different services, such as margin trading, Auto Trading with AI, future trading, etc.
Some exchanges also provide advanced trading tools, fast withdrawal services, and charge more.
Deposit and Withdrawal Fees
Crypto exchanges also make money from your every deposit or withdrawal. You can see a small amount of a cut as a fee whenever you try to deposit or withdraw money.
These fees can vary depending on the type of asset and method of transfer.
By Lending Funds
Nowadays, we can see margin trading in every crypto exchange. This feature allows traders to extend their trading limit by borrowing some funds from the exchange. If a trader wins a trade with these funds, the exchange charge interest on it.
Listing fees
Exchanges charge a fee for the new digital asset to list it on their platform. The positioning of a new digital asset depends on how much its owner pays to list his product.
Sometimes exchange charge more fees to make your asset more reachable.
Final Verdict
Exchanges don’t rely on a single source of income. The team behind the scene makes money from different sources, as I described above. I’m sure that after reading my article you can literally know about how crypto exchanges make money and grow.
Source : bsc.medium
