How Do Custodial Exchanges Profit If Their Internal Transaction Fees Are Low?
Custodial exchanges have several revenue streams beyond direct trading fees. One major source is the bid-ask spread, which is the difference between the buying and selling price of an asset.
They also earn revenue from withdrawal fees, fees for listing new assets, and interest earned on user deposits. Some larger exchanges offer additional services like margin trading, futures contracts, and staking services, all of which generate substantial fees.
This diversified model allows them to keep spot trading fees competitive.
Glossar
Spot Trading Fees
Mechanism ⎊ Spot trading fees represent the costs incurred when executing an immediate exchange of an asset ⎊ cryptocurrency, options contracts, or financial derivatives ⎊ for another, typically a fiat currency or another digital asset, at the prevailing market price.
Custodial Exchanges
Infrastructure ⎊ These venues operate centralized order books and matching engines, providing the necessary throughput for high-frequency options and futures trading in the crypto space.
Custodial Exchange
Model ⎊ Custodial Exchange describes a centralized entity that takes possession and control of user funds to facilitate trading, operating similarly to a traditional brokerage but within the digital asset domain.