How are Cryptocurrency Exchanges Profitable?

As more people get into the crypto market, more platforms pop up to help them buy and sell. People can buy, sell, store, and trade any digital object on these cryptocurrency exchanges.

How do cryptocurrency companies make money, though? Many exchanges make money through commissions, withdrawal and transfer fees, fees from trading platforms, market making, lending, listing, transaction fees, etc.

Deposit Fees

Every cryptocurrency market lets users buy and sell a wide range of assets. For example, you must put money into your wallet before you can buy bitcoin on any site. There are two ways to add funds: with cryptocurrencies or with fiat money.

Since the first is crypto, it may be free, but using fiat money will cost you. If you deposit a fiat money through a bank transfer, the fees will be less. But if you pay with a debit or credit card, you will have to pay more.

The reason is that exchanges have to pay the bank or credit card business money to handle the transactions.

Also, the fees for making a deposit vary by exchange. Some charge a lot, like 11%, and some charge less.  Also, some exchanges don’t charge fees for straight crypto deposits or payments made through Bank ACH.

Withdrawal Fee

The other way that crypto platforms make money is when people take their money out. Users pay fees to the exchange so that it can handle their payments. But these platforms’ withdrawal fees change based on how the fees are set up.

Some of the most popular cryptocurrency platforms, like Coinbase, charge a flat fee of 1% on withdrawals in addition to the normal network fees. Crypto.com has a new way of charging for Bitcoin withdrawals through the BEP20 network. They charge 0.0001 BTC.

At the moment, many of the best cryptocurrency platforms charge different withdrawal fees based on the amount.

Commission for each trade

Digital currencies are bought and sold on exchanges that are either controlled or not. Beginners should always be able to trade on centralized platforms. The site connects people who want to buy and people who want to sell. Also, centralized exchanges make margin buying possible by giving users leverage.

Because of this, a centralized coin exchange will charge more for its many services. These platforms make money from the people who use them by taking a cut of each trade.

For example, if a trader makes a $2,000,000 trade and pays a 0.01% fee, the exchange makes $2,000. So, bigger trades bring in more money and vice versa.

On the other hand, a decentralized exchange is generally for professional traders because smart contracts handle transactions instead of brokers. The site doesn’t let third parties get in the way, so users can be in charge of their own transactions. But each deal on these exchanges costs a certain amount.

Listing Fee

For new coin exchanges to make money, listing fees are a must. In the beginning, when there aren’t many trades, the commission fees that users pay won’t be enough. So, the exchange gets money by charging a percentage of the money made during the initial coin offering for selling services.

But the listing fees change based on how well-known the cryptocurrency company is. A small market, for example, might charge between 0.5 and 1BTC. Business Insider says that most medium-sized cryptocurrency exchanges charge between $50,000 and $1 million to sell an ICO.

But the fee to list a token on a hybrid market can be anywhere from $1 million to $2.5 million. Since the platforms have a lot of money, token owners can be sure that their ICOs will raise more money and won’t mind paying such a high percentage.

Market Making

Market making is one way that crypto markets make money. This method includes making certain cryptocurrencies more liquid. The market maker sets the ask and bid prices for crypto coins and gets money from the difference.

Market makers can be a centralized coin exchange or a single person. The profit in market making comes from the gap between the bid and the ask price over a number of trades. But besides that, market makers sometimes make trades for their own accounts. These are often called “principal trades.”

Lending in Cryptocurrency

Crypto lending is a tool of Decentralized Finance that lets investors lend their crypto holdings to people who need money. It lets the lender get interest on the crypto loan every month. The money is the same as what you would get from a traditional savings account.

Exchanges make money by lending buyers crypto and getting interest and “liquidation fees” in return. When borrowers miss margin calls, they have to pay disposal fees.

Earn accounts are another way for exchanges to make money. On Earn accounts, people who own crypto are charged a high interest rate to keep their money on the exchange. The company gives out high-interest loans with the crypto funds or invests them in decentralized and centralized staking programs.

Crypto loan platforms also charge transaction fees for their services and offer higher rates to lenders who want to lock in their funds for longer.

Cross Promotion

The best crypto exchanges also use cross advertising as a way to make money. It means putting ads for another company on your platform to help them reach more people.

In the crypto space, airdrops are a normal example of a way to give something away. An airdrop is a way for coin owners to sell their tokens in partnership with exchanges. In this process, free tokens or coins are sent to the wallet addresses of users. The goal of airdrops is to bring attention to a new token or coin in the crypto community.

Participants have a few jobs to do, such as making a trade or a transaction on the exchange site. When the people taking part in the airdrop do these things, the platform charges fees and gets money.