Research20 Jul 2024 18:03
How does an exchange make money?
A crypto exchange typically makes money by taking a percentage on every trade. A simplistic example is, consider that they charge 0.10% (10 basis points) on the notional value of each trade. For a trade worth
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10,000,theexchangewouldmakeβ10,000x0.1020`. The amount is multiplied by two because the transaction involves two parties, and each party pays the fee.
In practice there are other important considerations and the fees can vary greatly. The two main variables are:
Whether the exchange has a varying fee structure or a tiered fee structure or discounts for, say, holding a certain quantity of the exchange token
Whether the exchange charges differently - or even pays for - Maker trades as opposed to Taker trades
Let's dig into both.
About tiered fee structures
Crypto exchanges do not typically charge the same level of fees to all traders. Instead, they implement a tiered fee system whereby traders who bring more volume to the exchange are compensated with lower fees.
This provides an incentive. More active