Crypto is unregulated so there's nothing stopping you from doing more than just profiting off of transaction costs. Why get rich slowly when you can get rich quickly? During the height of the cryptocurrency craze, everyone was making huge profits using this business model. I assume the profits stopped when the market shrunk, putting shady companies (slightly) below solvency.
It's hard to compete in a market where big, scummy brokers will ask no transaction fees because they use their customers' assets to speculate and profit. Had they switched tactics to a transaction fee based approach, they'd risk large customers taking their assets to another broker, which can cause insolvency problems to become visible. Switching business models after having your shady business model collapse may not be an option!
I think you can make a decent amount of profit in the cryptocurrency market by just doing the thing that's normal for real brokers, but you'll need quite soms scale to become seriously profitable. You'll also need to prove somehow that your nee company is the real deal unlike all of your shady competitors.
There are probably real exchanges out there, completely solvent and doing honest trades, but without large volumes you'll probably never hear of them. The most risky businesses will make the most money, provide the cheapest service, and get most of the attention, at the risk of collapsing and taking the price of their speculative assets down with them.
"exchange" is mentioned exactly zero times in the article. However, I'll let that slide as presumably you meant to imply that exchanges make money through yield farming, which also doesn't make sense because yield farming doesn't involve the participation of exchanges at all. As mentioned in the article, the concept is that a smart contract accepts deposits and hands out tokens, which constitute the yield. No part of that requires exchanges.
You seem to be under the impression that a crypto exchange is like a modern day stock or commodities exchange. It is not. It's much more akin to a hybrid of an 1860's era wildcat bank and a 1900's era bucket shop. Their main business is NOT executing crypto trades on behalf of customers no matter what they might say.
You really need to provide some citations. The fees are actually extremely lucrative, check the Coinbase filings during the bull run. The FTX trading fees were massive as well and is one of the reasons SBF is a profound idiot. He could have banked those fees forever but he wanted more and more gains so went to the dark side trading and using user funds and of course losing them.
> The (FTX) crypto exchange's revenue soared more than 1,000% from $89 million to $1.02 billion in 2021.
People really still take any financials that FTX released at face value? Do you also believe SBF when he says he was 8 minutes away from receiving billions of dollars of funding that would have made everyone whole when he mistakenly filed bankruptcy?
This article has nothing to do with how crypto exchanges make money. They make money from trading fees. Let's say your claim about wash trades is true, why wouldn't the exchange make money from those fake trades?
To answer GPs question, legit exchanges do spend a lot of money and effort on keeping user's assets secure so it's maybe not as easy as it seems. But in the case of FTX, I totally agree. FTX was like 2nd or 3rd highest volume exchange and could have been a highly profitable business on it's own. Only SBF knows the answer to why that wasn't enough.
Well while you are deciding if you are going to buy something with your 5k or not, I, a gigabrain genius, can take your 5k and buy the latest mooning stable dog coin and turn it into 50k gaurantteeed and when you want to buy your shares sell it for massive gainz and keep the 45k I made for myself.
Coinbase lost its shirt last quarter doing that. Even in the traditional finance worlds the exchanges have to be extremely consolidated and offer myriads of products to make it.
The crypto market imploded last quarter, that is to be expected. Brian Armstrong and Coinbase have been in this through multiple cycles and know how it goes. Coinbase still has 5.4 billion in cash to make it through the tough times and make lots of money on the next crypto manic cycle. Based on previous cycles, the bottom is already in for crypto. Think of crypto bull runs like the holiday season for retail businesses. It’s where they make their money.
> Based on previous cycles, the bottom is already in for crypto.
Why would you base any crypto predictions on previous cycles? Has the crypto market ever experienced a cycle with high inflation and rising interest rates?
That’s not difficult, it’s what Coinbase and Kraken do. But what if you want to offer derivative products that are leveraged by default where someone can deposit 5k and wants to buy 30k worth of a shitcoin that can drop 90% in a day?
If someone deposits cash, don't offer any interest. Keep it as cash (or something backed by the US dollar).
I can give Vanguard USD 5000 and feel safe thinking I can buy VTSAX anytime.
This is all these exchanges need to do. Just execute lots of trades and you will make a few pennies every time.
Why is it so difficult?