The past decade has seen the rise of cryptocurrency exchanges across the globe. Although they are still nascent, they have added millions of trading volume. This is why entrepreneurs worldwide are taking advantage of the lucrative potential financial benefits offered through these platforms. The revenue model for cryptocurrency exchanges has thus intrigued all levels of executives ranging from the C-suite to founders of startups. With many people focusing on the benefits of these exchanges, there’s been an increasing demand to learn about the business model behind cryptocurrency exchange.
What is the exact revenue model for cryptocurrency exchanges? What is the way these digital exchanges earn money? This article will look at the business models of several cryptocurrency exchanges, essentially income models for cryptocurrency exchange.
Fees on Cryptocurrency Exchanges
The cryptocurrency exchange that has only recently launched will always have a difficult time despite the low volume, especially in the initial stage. It’s unrealistic to expect these exchanges to depend only on fees (which is the most effective method to make money, but that’s a different topic).
To address that issue, these digital platforms could introduce a coin and token listing service to generate initial revenue. Initial Exchange Offerings (CEOs), Security Token Offerings (STOs), and Initial Coin Offerings (ICOs) are arranged to take a share of the funds raised, which can amount to several hundred thousand US dollars, contingent on the particular project. The listing fees are usually paid in cryptocurrency or the native tokens of the project, and the listing price may be as low as 1-10 bitcoins.
There have been exchanges with extremely low numbers that have produced millions of dollars for their owners through charges for listings. It is observed that the competition for coins and tokens listing has become intense. Indeed, competition between exchanges to offer high-potential coins and tokens has grown so competitive that many exchanges have opted for the concept of “wash trading,” which is a method by which exchanges artificially boost their numbers of transactions to be ranked higher on websites such as KuCoin. This is not an ethical business practice that must avoid at all costs. Read to know more about it look metalenzchokkattuwired
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Commissions required to run a Crypto Exchange
One of the most well-known revenue sources of cryptocurrency exchange (and some physical trading platforms) is the charging of commissions for trades. The commission is essentially an amount for the service in facilitating transactions between buyers and sellers.
In digital asset exchanges, less than 0.01 percent commissions are now commonplace. It is no surprise that low commissions can be used to facilitate more significant trading quantities. For example, trade volumes as high as $1,000,00 USD will require only 100 cents in commissions.
Therefore, when an exchange can attract more customers, it is better. As the cryptocurrency market grows, exchanges for digital assets will likely see increasing volumes and, consequently, commission revenues.
Blockchains, Crypto-Exchanges, and Market-Making
Another excellent revenue model for cryptocurrency exchanges is market-making.
Simply put, it involves creating liquidity for a particular financial instrument. In the simplest terms, market-making consists in buying and selling digital assets on your exchange at slightly less attractive prices than other exchanges.
After the trade has been completed, you transfer it to a different exchange – to offset the prior trade. This strategy is very effective when implemented in a way that is automated and applies to spread markets.
Another finance model on cryptocurrency exchanges would be to outfit the exchange by incorporating an IEO module that allows other businesses to manage token sales. In this revenue model for cryptocurrency exchanges, your exchange acts as a place where people can purchase tokens before going to an exchange, similar to how Kickstarter functions. In this instance, however, the contributors are given tokens to exchange for other digital assets like BTC and ETH.
How can the exchange earn profit from this? When the exchange receives funds from the fundraising company, it charges a percentage of the proceeds. This percentage could generate a significant payment to the exchange hosting based on the total amount of money raised.
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with many options to set up the revenue model for crypto trading based on your current and planned goals and your expectations of exchanges, you could choose one of the methods listed. These options will all likely continue to evolve as more studies are conducted on cryptocurrency and exchanges. And new doors to opportunities will be opened!
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