how-does-binance-make-money

How Does Binance Make Money? The Binance Business Model In A Nutshell

Binance is a cryptocurrency exchange domiciled in the Cayman Islands. It was founded in 2017 by Changpeng “CZ” Zhao and Yi He. During a game of poker in 2013, Zhao first learned of the potential of bitcoin. Soon after, he decided to go all-in on the cryptocurrency, selling his apartment to buy as much as he could. Binance revenue generation comes from six key areas: trading, withdrawal, and deposit fees; margin-borrow interest, futures’ trading fees, and cross collateral interest rates.

History of Binance

Binance is a cryptocurrency exchange domiciled in the Cayman Islands. It was founded in 2017 by Changpeng “CZ” Zhao and Yi He.

As a Chinese-born immigrant to Canada, Zhao came from relatively humble beginnings. He was forced to take on various jobs to support his family, including a short stint at McDonald’s. 

After graduating with a computer science degree from McGill University, Zhao built innovative trading software for Bloomberg’s Tradebook and the Tokyo Stock Exchange. During a game of poker in 2013, Zhao first learned of the potential of bitcoin. Soon after he decided to go all-in on the cryptocurrency, selling his apartment to buy as much as he could.

Naturally, CZ then decided to build his own bitcoin exchange using the experience he had building high-frequency trading platforms. The Binance platform was launched with an ICO worth $15 million. Just six months later, Binance became the number one most highly rated crypto exchange – largely a result of fast, reliable, low-fee trading.

Despite the obvious success of the platform, Zhao would not rest on his laurels. He added futures and margin trading to make it more competitive with similar services. Zhao also released the Binance Coin (BNB) to allow users to trade and pay fees on the Binance platform. Recent estimates suggest the token now has a market value of $86 billion.

Binance revenue generation

Binance revenue generation comes from six key areas. Following is a look at each.

Trading fees

For users who do not use BNB to pay their trading fees, Binance charges a 0.1% spot trading fee. There is also a 0.5% Instant Buy/Sell fee.

The exact fee is calculated by assessing the 30-day trading volume and the average 24-hour BNB holding of the customer concerned. Using the maker-taker model, trading volume and average holding are split into eleven levels with a fee assigned to each on a sliding scale. 

Users who wish to pay these fees with BNB will receive a 25% discount.

Withdrawal fees

Users are also charged to cover the transaction cost of moving cryptocurrency out of their Binance account. 

Withdrawal fees are determined by the blockchain network and can fluctuate due to factors such as network congestion. Bitcoin, for example, can be withdrawn from multiple networks with each network associated with a specific withdrawal limit and fee.

Deposit fees

A deposit fee of 4.5% is also charged for those who want to add USD to their account using a debit card.

Deposits made via the Automated Clearing House (ACH) transfer system or by wire transfer are free.

Margin borrow interest

Binance also charges a Margin Borrow Interest Rate based on the VIP level of the customer and the cryptocurrency involved. 

Futures and Coin-M futures trading fees

Futures trading is offered perpetually and quarterly with leverage up to 125x. Again, fees are based on the cumulative 30-day trading volume, average 24-hour holdings in BNB, and the VIP level of the user.

Coin-M futures trading is also available with the same leverage and fee structure as regular futures trading.

Cross collateral interest rates

Binance supports four collateral coins: BTC, EUR, ETH, and BUSD. 

Daily interest rates are based on the coin chosen, the amount borrowed, and customer VIP level.

Key takeaways:

  • Binance is the world’s largest cryptocurrency exchange, founded in 2017 by Changpeng Zhao and Yi He. Zhao sold his apartment to go all-in on bitcoin and used his prior experience to create an innovative crypto trading platform.
  • Binance charges trading fees to those who prefer not to fund their trades with Binance Coin (BNB). The company also charges withdrawal fees to move cryptocurrency out of a Binance account.
  • Binance earns money through margin borrow interest, futures trading, coin futures trading, and cross collateral interest rates. These fees are mostly determined by the cryptocurrency being traded, VIP level of the customer, monthly trading volume, and average holding.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"