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.