Binance Business Model | How Does Binance Make Money?

Binance was founded in 2017 by Changpeng Zhao and is a relative newcomer in the cryptocurrency industry. It has rapidly grown into the world’s largest exchange by volume, offering users access to hundreds of cryptocurrencies. 

Currently, Binance is available in over 180 countries, but a separate entity, Binance US, was created to serve US customers.

A jack-of-all-trades, Binance Business Model offers users access to everything related to cryptocurrency on one platform. 

Binance makes it easy for beginners to sign up and start trading, and advanced users can get as technical as they want with advanced charting, trades, and custom API keys.

What is Binance?

Binance is a crypto trading and digital asset exchange platform that enables users to trade cryptocurrencies and other digital assets. 

It also provides a range of additional products and services, including an online education platform, cloud computing solutions, and collective crypto mining.

Binance Business Model | How Does Binance Make Money? 1

Binance earns money through trading fees, loan interest, spreads, fees from its broker program, cloud offerings, interchange fees, mining services, and investment profits.

Binance was founded in 2017 and has quickly risen to become the world’s largest cryptocurrency exchange by trading volume. The company earned a profit of $1 billion in 2020 alone.

What are the Features of Binance?

The features of Binance are explained below:

Trust Wallet Partnership

Binary does not have its own digital wallet but collaborates with Trust Wallet, a market leader with over five million users. Trust Wallet secures your assets with a PIN, biometric access, an encrypted key, and a 12-word recovery phrase.

Two-factor Authentication

Binance also supports two-factor authentication (2FA) via SMS or the Google Authenticator app.

Whitelisting Crypto Addresses

You can whitelist addresses on Binance. This prevents those addresses from withdrawing your cryptocurrency. You store these addresses in your address book, effectively blocking access to your funds to any other addresses.

Advanced Verification

The advanced verification process on Binance is required for platform access (larger deposits/withdrawals, for example). 

Additionally, it ensures that no one else can create a bogus account using your identity. You will need to upload a government-issued photo ID and a photo of yourself to proceed with advanced verification.

Device Management

The Binance platform allows you to review your access logs and block any unfamiliar devices.

Binance Business Model

Binance is a FinTech company providing cryptocurrency-related products to customers in more than 180 countries.

The Binance exchange is the company’s flagship product, which allows retail and institutional investors to buy, sell, and trade cryptocurrencies. Traders can exchange over 500 currencies using the platform.

Binance’s trading options are another feature that sets it apart from other exchanges. A few examples are stop-limit orders, market orders, margin trading, and peer-to-peer trading.

Users may also donate crypto assets they own to some of the many charities that Binance supports. 

There is no profit margin for the platform; all proceeds are donated to the user’s charity.

Binance Business Model

Binance launched its Academy to ensure traders are making informed decisions. It serves as a  knowledge base for anyone interested in learning more about crypto-related topics.

Additionally, customers can borrow cryptos (as collateral for their own holdings), stake them,  and even pay with the Binance debit card (powered by Visa).

Binance has also created several products aimed at businesses. 

Examples include an API or widget that allows businesses to offer their own brokerage products, the Binance Cloud (an all-in-one platform that allows partners to launch digital asset exchanges quickly), and even a program that allows businesses to launch tokens.

A user can access Binance via the firm’s website or download its desktop client or mobile application (available for Android and iOS devices).

How Does Binance Make Money?

Binance earns money from trading fees, interest on loans, broker program fees, spreads,  cloud offerings, interchange fees, mining services, and investment profits.

The platform also generated revenue from listing fees associated with the launch of new crypto tokens. 

It was reported that in October 2018, the companies had accepted bribes of as much as 400 BTC, and in response, they decided to make their listing fees transparent and donate all proceeds to charity.

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To keep this analysis brief and concise, I have excluded revenue from the company’s other businesses and acquisitions. 

Binance acquired CoinMarketCap for $400 million in 2020, making it one of the most prominent examples. 

CoinMarketCap earns money primarily by referring users to other services.

Let’s examine Binance’s revenue streams more closely:

Trading Fees

Binance charges a fee for trading cryptocurrency. The trading products offered by Binance are subject to a range of fees.

The Binance platform allows retail and institutional investors to trade on margin through futures contracts and even by purchasing synthesized stock tokens.

Binance Business Model | How Does Binance Make Money? 3

Binance charges a fee when a user purchases or sells a cryptocurrency. In general, Binance charges 0.1 percent for each trade.

Binance will waive those fees for traders who use BNB, its native currency. The Binance exchange also charges withdrawal fees for traders who wish to withdraw their profits.

Traders on Binance have access to various order types, including Buy and Sell, margin trading, and futures trading.

They charge significantly higher fees since traders do not hold underlying assets and carry an inherent risk.

If users wish to trade Bitcoin on margin, the annual interest rate (= annual percentage yield) can be as high as 18.25 percent. Here you can view margin fees, and here you can view futures trading fees.

Spread

Starting in April 2021, users can also buy stock tokens, which roughly match the value of a stock such as Apple or Tesla.

The value of its underlying shares determines the value of a token. The token increases by the same percentage when the stock price rises. 

As with real stocks, tokens can only be traded during active market hours.

When you buy or sell a token, there are no fees associated with it. However, Binance does not seem to provide free synthetic stock trading.

Binance is almost certainly going to earn money from the spread, which is the difference between the buy and sell prices.

Accordingly, if your purchase price is 40.00 and your selling price is 39.25 at the time, the spread corresponds to the difference between the two (equal to 1.9 percent).

Binance can effectively direct order flow to the highest bidder since all transactions are routed through its platform.

Interchange Fees

Binance and Visa launched a Visa debit card in July 2020. To use the card, customers must first transfer funds from their cryptocurrency wallet to their spot wallet. A total of 60 million merchants across the globe accept the card.

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An interchange fee is charged when you use a debit card to make a purchase. The fee is a percentage of the purchase price paid by the merchant. The rate is typically less than 1%.

As a result of its partnership with Visa, Binance will receive a portion of those fees. Visa will keep the remaining fees.

Binance also charges up to 0.9 percent for payments and ATM withdrawals in addition to interchange fees. Binance will charge a $25 reissuance fee to users who need to reorder the card.

Interest On Loans

A user or institution can apply for cryptocurrency loans on Binance and earn interest on the loans by lending their crypto holdings.

Binance loans are available for a duration of seven to one hundred eighty days. The platform allows users to use their crypto holdings as collateral.

Binance earns money by charging interest on the loans it makes. Interest rates are calculated based on the amount borrowed, the collateral pledged, the type of currency borrowed, and the repayment period.

Binance Business Model

Users can also earn interest on their cryptocurrency holdings through Binance Earn (through Binance). The annual percentage rate (APY) can reach as high as 21.6 percent.

The Binance app provides users with several deposit options, including Savings, BNB Vault, Launchpool, and Locked Stack.

Based on the product selected, Binary lends funds to other customers who need credit or institutions seeking liquidity.

These borrowers then pay interest on those loans, which is typically higher than the rate set by the user—binance profiteers on the difference.

Crypto lending and borrowing were pioneered by BlockFi when it launched its loan product in 2017.

Cloud

The Binance cloud platform provides software-as-a-service (SaaS) capabilities that make it easy for businesses to launch digital asset exchanges.

Binance is responsible for the underlying infrastructure, security, and liquidity in this case so that partners can concentrate on business development and operations.

In addition to spot trading, the platform facilitates crypto-to-crypto and fiat-to-crypto transactions, as well as peer-to-peer fiat exchange. The partners can also list their own tokens (on approval).

The company makes money from the cloud product by charging an annual fee and splitting trading commissions with investors. There is no public disclosure of the company’s fee structures.

Fees will almost certainly be determined by anticipated volumes and the attractiveness of the customer.

Investing

As early as 2018, Binance began investing in other cryptocurrency and distributed ledger technology projects. 

Despite leading several funding rounds, most of the company’s investments remain unknown.

As with any investor, Binance makes money when it sells the company shares it purchased at a profit. In this scenario, dividends may constitute a viable source of income.

Mining Pool

Binance also launched two “mining pools” for mining Bitcoin and Ethereum in 2020.

Miners can earn more money with the service dubbed Smart Pool, automatically switching the hash rate to mine different currencies using the same algorithm.

Blockchain transactions are verified using the SHA256 algorithm, which is widely used for this purpose.

The Binance mining pool will charge Bitcoin users 2.5 percent and Ether users 0.5 percent pool fees. Bitcoin’s mining pool deducts the fee from the cryptocurrency it mines.

Success Story of Binance

Binance, headquartered in Valletta, Malta, was founded by Changpeng Zhao (a.k.a. CZ serving as the company’s chief executive officer) and Yi He in 2017.

CZ grew up in Jiangsu, China, and was raised by two intellectual parents. Being a professor in late 1970s China, CZ was born, which meant keeping most of your opinions.

His father was even labeled a “pro-bourgeois intellect” and exiled from the country for a short period after CZ’s birth.

In the late 1980s, CZ’s family moved to Vancouver, Canada. CZ volunteered wherever he could to assist the family, flipping burgers at McDonald’s and working late-night shifts at a gas station.

He enrolled in the Computer Science program at McGill University in Montreal. Following graduation, CZ worked in New York and Tokyo but never felt satisfied in any of his positions. He always had a goal in mind that his previous job couldn’t accomplish.

In two years, CZ was promoted three times while managing teams in London, Shanghai, and Tokyo after creating match trades at The Japan Stock Exchange and later developing futures trading software at Bloomberg’s Tradebook.

However, he became impatient and quit finding Fusion Systems, which became one of the first high-frequency trading systems available.

While playing poker with a venture capitalist, Zhao became aware of Bitcoin for the first time. Despite his demonstrated skills, Zhao joined Blockchain.info as the company’s third-ever Wallet team member-a risky move for even an experienced developer like Zhao. 

As head of development, he worked closely with prominent Bitcoin evangelists such as  Roger Ver and Ben Reeves.

After eight months at Blockchain.info, CZ joined OKCoin, exchanging fiat currencies and digital assets. 

Zhang became so obsessed with cryptocurrency in 2014 that he sold his Shanghai apartment for $1 million and invested the entire proceeds in Bitcoin (at $600 per coin). CZ has retained nearly all of its coins despite significant downturns.

In 2015, he co-founded BijieTech, a cloud-based system provider for exchange operators. 

The majority of exchanges were cumbersome and slow in the past, resulting in a poor user experience. Furthermore, none of them provided customer support.

In contrast, CZ’s BijieTech had developed a high-speed matching-engine trading system used by dozens of exchanges (which made the company profitable from day one).

The ICO (short for Initial Coin Offering) boom in early to mid-2017 prompted CZ to launch his exchange. 

Over the past few years, several hundred million dollars have been invested in blockchain and cryptocurrency projects.

Binance’s initial coin offering was a great success. On 1st July 2017, CZ’s team launched its initial coin offering (ICO) after completing its white paper in 16 days. The result was $15 million in cryptocurrency equivalent and 20,000 users and tons of PR.

Binance was off to the races in no time at all. Just over half a year after its launch, Binance had amassed over six million users, making it the world’s largest cryptocurrency exchange.

The Binance token (abbreviated as BNB) went from 10 cents to $13 during that time, valuing the company at $1.3 billion (today, the BNB token is the third-largest currency by market capitalization, behind only Bitcoin and Ether).

It is also regrettable that awful news would also follow the company almost from the start. Financial Services Agency of Japan threatened to file criminal charges against Binance in March 2018.

Binance relocated its headquarters from Tokyo to Valletta, Malta, as a result. At the time, the Maltese government had established favorable regulations and a hospitable business climate for all cryptocurrency businesses.

Although Tokyo was the firm’s second choice for a headquarters location, it was not its first choice. As a result of the Chinese government’s stance on cryptocurrency (and decentralization in general), CZ and his team were forced to relocate Binance.

In June 2018, Binance announced a $1 billion venture fund to support blockchain and cryptocurrency startups. The company’s BNB token would be used as a form of funding for eligible startups.

Binance Business Model

Coinbase, which launched its venture arm in 2018 and invested millions in other startups, led the way. After acquiring Trust Wallet a month later, Binance made its first acquisition.

The company has taken many steps to increase its user base (i.e., brand recognition) and platform activity (since more cash is circulating in its ecosystem). 

As a result, Binance launched its (now-famous) Academy in December 2018 to educate users about blockchain and cryptocurrency.

Binance’s growth has been accelerated, however, by the addition of fiat currency conversions and the subsequent addition of new payment options (such as debit or credit cards). Previously,  users could only buy currencies using their crypto holdings. 

The switch would allow them to simply use their credit card to purchase crypto in the currency of their choice (e.g., EUR or USD).

Furthermore, Binance became well-known for its rapid adoption of new cryptocurrency projects on its exchange. As a result, it has always been the market with the most diverse offering, with niche opportunities of interest to crypto enthusiasts.

It is important to note, however, that many of these coins were withdrawn from circulation quickly. Binance’s lax validation policy resulted in the platform accepting many so-called shitcoins. 

Binance was also suspected of accepting 400 BTC as a bribe to onboard and promote new tokens.

Binance earned $446 million in annual profits despite having launched only 18 months earlier, despite Bitcoin losing 70% of its value in 2018 (and exchange activity positively correlates with trading volumes).

It was nonetheless not far from trouble. Hackers stole Bitcoins worth 7,000 from a single Binance account in May of this year. 

Fortunately for the account holder, Binance recently launched its Secure Asset Fund for Users (SAFU), a quasi-insurance program that compensates users.

The company also introduced significant features that year, including margin trading (in June), lending (in August), and futures trading (in September). The year 2020 was, without a doubt, more successful.

An increasing number of people began to turn to online trading and, more specifically, cryptocurrencies due to stay-at-home orders caused by the Coronavirus pandemic. Binance took advantage of the uptick by making its largest acquisition to date. 

CoinMarketCap, the world’s most enormous cryptocurrency exchange volume, and pricing data aggregator were acquired for $400 million.

By the middle of 2020, the platform attracted an increasing number of institutional clients (such as banks). Binance offers various products to cater to these customers, including an over-the-counter (OTC) trading desk and shared mining pools.

Binance introduced a Binance-branded credit card as part of its launch, allowing users to purchase goods in the real world via a physical payment gateway.

Regulators also conducted a closer look at the stock exchange in 2020. The Russian federal authority in charge of media regulation, Roskomnadzor, banned access to Binance in September.

Forbes published an investigation revealing that Binance.US (the company’s American subsidiary) designed an elaborate structure to deceive regulators and profit illicitly from crypto investors in the United States. Binance denies all allegations and has sued Forbes for defamation.

In the years leading up to 2021, government regulation and awareness remain high. Following the launch of a tokenized stock trading product in April, Germany’s Federal Financial Supervisory Authority (BaFin) declared that it had reasonable grounds to suspect Binance of violating local securities laws.

Currently, Binance employs over 1,500 people around the world. According to Alexa, it is even among the world’s top 500 most visited websites. More than 15 million people use the platform monthly.

What Makes Binance Stand Out from its Competitors?

The unique features like user rewards, Binance academy, multiple trading options, advanced charting, and API keys are the unique features of Binance that make it stand out from its competitors. 

Let’s understand the unique features of Binance in detail:

User Rewards

Binance hosts giveaways for their users in an attempt to boost user engagement on their platform. Binance offers these prizes through its Binance rewards center. Furthermore, Binance hosts crypto airdrops for upcoming currencies listed on its platform.

Advanced Charting

Binance’s embedded TradingView charts allow users to create advanced charting views with hundreds of overlays and indicators.

Binance Academy

Binance Academy is the company’s own free education platform. From introductory crypto classes to advanced trading tutorials, Binance Academy is a one-stop-shop for everything crypto.

  • Market order
  • Limit order
  • Stop limit order
  • Stop market order
  • Post only order
  • Trailing stop order
  • Time in force limit orders
  • One-cancels-the-other (OCO) orders
  • Margin trading
  • Limit TP/SL order (strategy order)
  • Peer-to-peer trading
  • Pool liquidity
  • Guess the price battles 

API Keys

Binance makes its API keys public, which allows third-party applications to integrate with the exchange.

Also read, How Does Mozilla Make Money?

What is the Funding, Valuation, and Revenue of Binance?

Binance has raised a total of $25 million in venture funds as well as via ICOs, according to Crunchbase (ICO).

Some notable investors include Sequoia Capital, Vertex Ventures, Black Hole Capital, and Funcity Capital.

The company must not reveal revenue or valuation figures to the public because it is privately held.

Although CEO Zhao stated in an interview with Bloomberg that the company expected profits between $800 million and $1 billion (!) in 2020 (up from $570 million in 2019).

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