Cryptocurrency exchanges are technological unicorns that have managed to execute a strategic business model that can help them stay afloat during periods of high volatility. On the same note, such exchanges stimulate market activity and enable users to participate in the crypto industry by trading cryptocurrency assets. Therefore, this article focuses on ways exchanges generate revenue.
Most of the revenue comes from trading commissions. Exchanges charge commissions for both sell and buy orders; however, the exchange should create facile conditions to stimulate trading activities. Another important aspect is that the number of traders is directly proportional to the number of users. Thus, exchanges should focus on onboarding active users who can execute multiple transactions rather than just one large order.
The increase in new cryptocurrency projects helps exchanges create a new revenue flow. Established exchanges can charge between $2-$5 million for listing a single coin on their platform, which will help the project generate additional liquidity. In addition, listing on a major exchange entails that projects will have more exposure to higher capital investors and help token prices skyrocket in the short term.
IEO, or Initial Exchange Offering
Exchanges offer initial exchange offerings or IEOs are similar to ICOs; however, they are less risky because exchanges provide some form of guarantee. IEOs are preferred to the detriment of ICOs because exchange put their reputation on the line and use their internal resources to analyze and vouch for a project. Platforms can charge between a couple of thousands to millions for an IEO, depending on where the exchange is registered.
OTC, or Over-the-Counter process
Over-the-counter processes are services exchanges offer institutional investors allowing investors to make high capital investments without affecting the market price. Exchange can charge an additional fee, and traders who want to benefit from the OTC service must trade a minimum which sometimes reaches hundred of thousands of dollars. Of course, exchanges also generate commissions from the trade.
Markups are software processes that enable accounts to manage arbitration more effectively and offer exchanges new revenue streams. Thus, software operators can choose to include or exclude arbitrage prices altogether. The software will enable exchanges to decrease the trade spread; as a result, trades processed with the markup will become a source of revenue for the platform.
New trading features enable exchanges to act as brokers and provide traders with funds that offer more stimulating trading opportunities. Thus, the exchange connects to a brokerage account that offers traders future and margin trading options on cryptocurrencies. As such, traders can transition to a more of a gambling trading approach which helps exchanges increase their profit margins. Exchanges that offer such trading options should have to follow risk management procedures to avoid impermanent loss of funds.
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