Binance’s business model revolves around providing a secure and user-friendly platform for buying, selling, and trading various digital assets and offering value-added services such as an education platform, cloud solutions, and collective mining options to generate additional revenue streams.
Binance generates revenue through various sources, including trading fees, interest on loans, spreads, fees from its brokerage program, cloud services, interchange fees, mining activities, and profits from strategic investments.
Established in 2017, Binance has experienced rapid growth to become the largest cryptocurrency exchange globally based on trading volume. In 2020, the company reported an impressive $1 billion in net profits, solidifying its position as a leading player in the digital assets industry.
Binance in Early Days
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In the early days of its operations, Binance focused primarily on providing a secure and user-friendly platform for buying, selling, and trading cryptocurrencies. It quickly became popular among cryptocurrency traders and investors due to its low trading fees and wide range of supported assets. As the company grew, it expanded its offerings to include cloud solutions, collective mining services, and a brokerage program.
Binance has also acquired other companies and integrated their services into its platform. For example, in 2018, Binance received the mobile wallet provider Trust Wallet, which has since been integrated into the Binance platform. In 2020, Binance acquired the crypto derivatives trading platform JEX, which it has also integrated into its platform.
Despite the challenges posed by the COVID-19 pandemic, Binance continued to grow and expand its operations. The company posted net profits of $1 billion in 2020, solidifying its position as one of the leading players in the cryptocurrency industry. Binance has also supported the broader crypto ecosystem, investing in and supporting several cryptocurrency and blockchain-related startups.
Binance is committed to driving the growth and adoption of the cryptocurrency industry and continues to expand its offerings and improve its platform to meet the needs of its users. With a strong focus on security, innovation, and customer service, Binance is well-positioned to remain a leader in the cryptocurrency industry for years to come.
What is Binance? How Does It Work?
Binance is one of the leading cryptocurrency exchanges in the world, founded in 2017. It is headquartered in Malta and has quickly grown to become the largest cryptocurrency exchange by trading volume. Binance offers a wide range of digital assets, including cryptocurrencies, and provides users with an easy-to-use platform to buy, sell, and trade these assets.
Binance operates as a central exchange, meaning that users deposit their digital assets into the exchange’s centralized platform and then trade with other users on the exchange. This differs from a decentralized exchange, which operates on a decentralized network, allowing users to trade directly with each other without the need for a central authority.
Binance provides users with a simple and intuitive user interface, making it easy for even those new to the world of cryptocurrency to trade and manage their digital assets. The platform supports a variety of trading pairs, including popular cryptocurrencies such as Bitcoin, Ethereum, and others. Binance also provides users with access to its educational platform, Binance Academy, which offers a wide range of resources for learning about the world of cryptocurrency.
One of the key features of Binance is its security measures. The exchange uses multi-tier and multi-cluster system architecture to ensure the safety of user funds. It also implements two-factor authentication and Google Authenticator to provide an extra layer of security. Binance also has a robust risk management system in place to detect and prevent fraudulent activity.
In addition to traditional trading services, Binance offers several value-added services, such as cloud solutions, collective mining services, and brokerage programs. The cloud solutions provide users with a simple and cost-effective way to launch their own cryptocurrency exchange. The cooperative mining services allow users to pool their resources together to mine popular cryptocurrencies, increasing the chances of success. The brokerage program provides professional traders access to various financial instruments and services, including high-speed trading and margin trading.
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The History of Binance Business Model.
Binance was founded in 2017 by Changpeng Zhao, also known as “CZ,” who previously co-founded the high-frequency trading platform Fusion Systems. The company was initially based in China but moved to Valletta, Malta, due to regulatory concerns. Since then, Binance has quickly grown to become one of the world’s largest and most popular cryptocurrency exchanges.
Raised in Jiangsu, China, CZ hailed from a highly educated family where his parents were both esteemed educators. Nevertheless, during the tumultuous late 1970s, professing one’s beliefs was a dangerous pursuit for those residing in China, including CZ’s parents.
CZ’s father faced the unfortunate fate of being deemed a “pro-bourgeois intellect” and was swiftly exiled from China shortly after CZ’s birth. This exile resulted from the political climate of the time, where expressing independent thoughts and opinions could result in severe consequences.
To find a better life, CZ’s family migrated to Vancouver, Canada, in the late 1980s. Despite the challenges of adapting to a new country, CZ was determined to support his family in any way possible. This included working grueling hours at McDonald’s, flipping burgers, and at a gas station during late-night shifts.
Determined to succeed, CZ enrolled in McGill University in Montreal to study Computer Science. Upon graduation, he gained valuable experience working in both Tokyo and New York, but CZ was not content to settle for a job that did not fulfill his aspirations. Instead, he was driven by a constant desire to strive for more and continuously set his sights on higher goals.
CZ’s expertise and hard work did not go unnoticed. After honing his skills by building systems at The Japan Stock Exchange and developing software for futures trading at Bloomberg’s Tradebook, he quickly rose the ranks. In just two short years, he was promoted three times and was tasked with managing teams across London, Shanghai, and Tokyo. His exceptional ability to lead and drive results was a testament to his drive and determination.
However, CZ’s ambition and desire for more significant challenges led him to strike out independently. Impatient with the limitations of his current role, he took the bold step of quitting to start his own company, Fusion Systems. With his expertise and drive, he built some of the most advanced high-frequency trading systems on the market, cementing his reputation as a visionary entrepreneur.
It was in 2013 that CZ was first introduced to the world of Bitcoin through a chance encounter with a venture capitalist at a poker game. Seizing the opportunity to explore this new and exciting technology, he joined Blockchain.info as their third Wallet team member. Despite the risks involved, CZ’s exceptional development skills and experience made him a valuable asset. As the head of development, he worked closely with prominent Bitcoin advocates such as Roger Ver and Ben Reeves, further solidifying his position as a leading figure in the industry.
CZ’s passion for crypto continued to grow, and after just eight months at Blockchain.info, he took on the role of Chief Technology Officer at OKCoin, an exchange for trading fiat currencies and digital assets. His dedication to the industry was such that in 2014, he made a bold move by selling his Shanghai apartment for $1 million and investing the entire sum into Bitcoin for $600 per coin. Despite the volatile market, CZ held on to nearly all of his coins, displaying a steadfast commitment to his belief in the potential of cryptocurrencies.
Recognizing the need for improvement in the crypto exchange space, CZ co-founded BijieTech in 2015. As a provider of cloud-based systems, BijieTech aimed to solve the issues of clunky performance and poor user experiences that plagued the majority of exchanges at the time. With a focus on offering top-notch customer support, BijieTech set itself apart from the competition and quickly became a leading player in the industry.
While other exchanges struggled to keep up with the market’s demands, BijieTech, under the leadership of CZ, was thriving. With a cutting-edge, fast-matching-engine trading system, the company was able to differentiate itself from its competitors. This innovation set BijieTech apart from the rest and made it profitable from its first day of operations. BijieTech quickly became the go-to provider for many in the industry by providing top-notch technology to exchange operators.
The ICO boom of 2017 was a pivotal moment for CZ and his involvement in the crypto industry. As he watched countless blockchain and crypto projects raise hundreds of millions in funding through Initial Coin Offerings, he saw a unique opportunity to launch his own exchange. His extensive experience in the industry and the growing demand for ICOs inspired CZ to launch his own platform that would allow for the seamless and secure buying and selling of digital assets. And thus, Binance was born.
The success of Binance’s ICO was a testament to CZ’s entrepreneurship and vision. In just 16 days, his team assembled a comprehensive white paper and launched the ICO on July 1, 2017. The result was staggering – the company raised $15 million in equivalent cryptocurrency and saw a surge of 20,000 user sign-ups. The ICO not only brought in significant funds for the company but also generated a substantial amount of PR, helping to put Binance on the map as a significant player in the crypto industry.
With its successful ICO, Binance quickly gained momentum and quickly established itself as a dominant player in the cryptocurrency exchange industry. By the start of 2018, just over half a year after its launch, Binance had already attracted over six million users, cementing its position as the world’s largest cryptocurrency exchange. This rapid growth was a testament to the team’s hard work, the platform’s user-friendly interface and innovative features, and the increasing interest in cryptocurrencies and blockchain technology. Binance quickly became the go-to platform for buying and selling digital assets, and its success was beginning.
Binance’s success was reflected in the impressive performance of its native token, BNB. From just 10 cents at launch, the BNB token rose to $13 in just half a year, giving Binance a market capitalization of $1.3 billion. This rapid growth put Binance in an elite league of its own, as the BNB token was now the third-largest currency by market capitalization, behind only Bitcoin and Ether. This remarkable growth in value solidified Binance’s position as a leading player in the crypto market and demonstrated the growing popularity and demand for its platform. Binance rapidly became the go-to destination for crypto enthusiasts, traders, and investors.
Faced with the prospect of being shut down in Japan, CZ quickly moved Binance’s operations to Malta. This small island nation embraced blockchain technology and welcomed crypto businesses with open arms.
Malta became a hub for cryptocurrency companies and exchanges due to its favourable regulations and business-friendly environment. Binance’s move to Malta helped the company grow and expand globally. In addition to its central exchange platform, Binance has since launched several other ventures, such as Binance Launchpad (an ICO platform), Binance Academy (an educational resource), and Binance DEX (a decentralized exchange).
The Chinese government had imposed strict regulations on cryptocurrency, which made it difficult for Binance to operate in the country. As a result, the company had to relocate to Japan and later to Malta, where it could take advantage of the more favourable regulatory environment. The move to Malta allowed Binance to continue its rapid growth and establish itself as one of the world’s largest and most successful cryptocurrency exchanges.
In addition to the venture fund, Binance has continued to expand its offerings over the years. This has included the launch of new platforms and services such as Binance Futures, Binance Lending, Binance Staking, and Binance Launchpad. The company has also acquired several other exchanges and services, such as the decentralized exchange JEX, the peer-to-peer trading platform DEX.io, and the travel rewards platform TravelbyBit.
NOTE:
- Binance Futures: A platform for cryptocurrency futures trading.
- Binance Lending: A platform for earning interest on crypto holdings.
- Binance Staking: A platform for staking cryptocurrencies.
- Binance Launchpad: A platform for conducting token sales.
One of its major competitors, Coinbase, launched its own venture arm in 2018 and invested millions in other startups. Afterward, Binance acquired Trust Wallet, its first-ever acquisition.
Apart from its investment plans, Binance has introduced a platform called Binance Academy to educate its users. The launch of Binance Academy was a significant move for the firm as it aimed to increase its user base and establish itself as a trusted and knowledgeable player in the cryptocurrency and blockchain industry. The platform offered a range of educational resources such as articles, videos, and quizzes to help users deepen their understanding of blockchain and crypto. The move also helped Binance further differentiate itself from its competitors and set itself apart as a leader in the space.
The ability to purchase cryptocurrency using fiat currency through debit or credit cards made it much easier for people to enter the world of cryptocurrency, which led to a significant increase in Binance’s user base and overall activity on the platform. This helped Binance establish itself as one of the leading players in the cryptocurrency exchange space.
Binance has become known for its fast listing process and willingness to list new projects, making it a go-to platform for users looking for various cryptocurrency options. This has helped Binance stand out in a highly competitive market, as users appreciate the ability to quickly access and trade the latest and most innovative projects in the crypto space. Binance’s approach to listings and its user-friendly platform have been key factors in its rapid growth and popularity among crypto users.
However, some of these coins have been discontinued very quickly. The validation process on Binance is known to be relatively relaxed, which led to many ‘shitcoins’ landing on the platform. Additionally, speculations arose that Binance took 400 BTC as a bribe for bringing new tokens on board.
Despite losing 70 percent of Bitcoin’s value in 2018, Binance still earned $446 million in profits after 18 months of operation (and trading volumes positively correlate with exchange activity).
Nevertheless, trouble was close at hand. Hackers gained 7,000 Bitcoins from a single Binance account in May 2019. In this case, Binance had just launched its Secure Asset Fund for Users (SAFU), a quasi-insurance program reimburses users for damages.
In 2020, Binance continued to thrive with the addition of new features such as margin trading in June, lending in August, and futures trading in September.
Capitalizing on the increase in online trading brought on by the COVID-19 pandemic, Binance made its largest acquisition by acquiring CoinMarketCap, the premier aggregator of cryptocurrency exchange volume and pricing data, for a whopping $400 million.
Binance expanded its offerings by launching several new products, such as an OTC trading desk and shared mining pools, to cater to the increasing demand from institutional clients. With these additions, the platform was well-equipped to meet the diverse needs of its growing number of bank clients and other institutional players in the industry.
The Binance credit card further expanded the platform’s reach by providing a convenient and practical way for users to convert their crypto holdings into fiat currency for everyday purchases. This move bridged the gap between cryptocurrency’s virtual and physical worlds, making it easier for users to use their crypto assets in their daily lives.
However, Binance quickly responded by launching a new platform specifically for Russian users, allowing them to continue trading cryptocurrencies and use the exchange’s services in a compliant manner. This shows Binance’s commitment to working with regulators and complying with local laws and regulations.
The allegations against Binance.US by Forbes sparked controversy in the industry, with many waiting to see the lawsuit’s outcome. Binance vehemently denied the claims and filed a lawsuit against Forbes for defamation, asserting that the article was baseless and intended to harm its reputation. Regardless of the outcome, it highlighted the increasing scrutiny faced by cryptocurrency exchanges, particularly in the US, as regulators aim to crack down on illicit activities in the sector.
As we enter 2021, the sentiment of increased government awareness and regulation continues. After launching a tokenized stock trading product in April 2021, Germany’s Federal Financial Supervisory Authority (BaFin) stated it had reasonable grounds to suspect Binance was violating local securities laws.
Binance continues to be a leading player in the cryptocurrency industry, offering its users a comprehensive range of products and services. With a growing number of employees and offices in various locations, it has become a dominant force in the digital asset space. With over 15 million monthly users, it is widely regarded as one of the most popular and reliable platforms for trading cryptocurrencies.
You may check its official website if you want to invest in Binance. You may also use Binance App, which is available in the Google Play Store and App Store.
How Does Binance Make Money or Generate Revenue?
Binance has diversified its revenue streams, making money from various sources such as trading fees, interest from loans, broker program fees, spreads, cloud services, interchange fees, mining operations, and returns from investments. This has allowed the platform to maintain its profitability despite volatility in cryptocurrency.
Furthermore, listing fees from the launch of new crypto tokens were also a source of income for the platform. It decided to make its listing fee structure transparent in October 2018 after rumors swirled that the company accepted up to 400 BTC as bribes.
To keep the analysis short, it won’t consider revenue from the company’s other businesses and acquisitions. Binance acquired CoinMarketCap in 2020 for $400 million, making it one of the most prominent examples. The majority of CoinMarketCap’s revenue comes from referral fees.
In the following sections, we’ll examine each of Binance’s revenue streams in more detail.
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Revenue From Trading Fees
The most common fee is a trading fee, which is calculated as a percentage of the total value of the trade and is taken from the asset being traded. Binance charges a standard trading fee of 0.1% for buying and selling orders.
Trading fees will be discounted if traders use Binance’s own currency, BNB. Traders also have to pay withdrawal fees when they want to withdraw their earnings from Binance.
Furthermore, traders on Binance can engage in margin and futures trading in addition to simple buy and sell orders.
These types of trading methods charge significantly higher fees due to their risky nature and the fact that traders don’t own the underlying asset.
A user who wants to trade Bitcoin on margin can pay as much as 18.25 percent in annual interest rate (APY). You may check the Margin fees over here. You may also check the future trading fees through the link to Binance’s official platform.
Calculation of spreads
A stock token, which resembles the value of a real-world stock such as Apple or Tesla, has also been available since April 2021.
Tokens are based on the market value of their underlying shares. By the same percentage as the stock price rises, the token increases as well. As with real stocks, trading tokens is only permitted during market hours.
There are no fees associated with buying and selling tokens. It is, however, reasonable to assume that Binance does not offer free trading of synthesized stocks. Most likely, Binance will generate income through the spread or the difference between BUY and SELL prices.
For example, if you buy at 50.00 and sell at 49.25, the spread is the difference between the two will be 1.5%. The Binance platform routes all transactions to the highest bidder, allowing it to direct order flow to the highest bidder.
Revenue Through Its Broker Program
Some of the world’s top crypto brokers partner with Binance to offer account management, order matching, APIs, and widgets, as well as marketing consultation and settlement services.
The company has more than 570 partners across 30 countries since it was founded in September 2019. This program allows the broker to focus solely on acquiring new clients and expanding its assets under management.
To join, broker partners must have at least 20,000 users (including crypto investors) and generate 1,000 BTC in monthly trading volume. Trading fees are another way Binance makes money from the program. These fees are funneled back to the broker to the tune of 60 percent.
In addition, the top 10 Binance brokerage partners (ranked by trading volume) will each receive a 10 percent share of revenue generated through this program. Incentives like these encourage brokers to increase their user base and volumes on the platform.
Earns Revenue Through Its Cloud Service
Other businesses can quickly launch digital asset exchanges using Binance’s software-as-a-service (SaaS) offering. Rather than focusing on business development and operations, Binance provides the underlying infrastructure, security, and liquidity.
The platform supports spot trading, such as crypto-to-crypto and fiat-to-crypto, as well as peer-to-peer fiat exchanges. It is also possible for partners to list their own tokens (upon approval). Revenue is generated from Binance’s cloud product via an annual fee and a commission split on trading fees.
There is no information about the company’s fee structure available publicly. All probability and fees are determined by expected volumes as well as the attractiveness of the customer.
Amount of interest charged on loans
The platform allows users and institutions to apply for crypto loans and lend their own crypto holdings to Binance to earn interest. There is a range of seven to 180 days for Binance loans. The platform allows users to use their crypto holdings as collateral.
By charging interest on these loans, Binance generates revenue. The interest rate varies depending on the amount borrowed, the collateral posted, the currency borrowed, and the repayment period.
Additionally, users can earn interest on their crypto assets through Binance Earn. There is a possibility of interest rates reaching a 21.6 percent annual percentage yield. In addition to Savings, BNB Vault, Launchpool, and Locked Stacking, Binance offers a variety of products for depositing funds.
According to the product chosen, Binance either lends money to other users seeking loans or to institutions in need of liquidity. On those loans, borrowers pay interest that is higher than what a user is expected to earn. Profit is collected from the difference by Binance.
In 2017, BlockFi launched its crypto loan product, pioneering the concept of crypto borrowing and lending.
Fees for interchanging currencies
The Binance debit card will be launched in conjunction with Visa in July 2020. Customers must transfer funds from their crypto wallets to the spot wallet to use the card. More than 60 million merchants around the world accept cards.
You’ll be charged an interchange fee when you use a debit card. As a percentage of the purchasing price, this fee is paid by the merchant receiving the payment. In most cases, it is less than one percent.
Due to Binance’s partnership with Visa, it will only receive a portion of the fees. As for the remaining fees, they will go directly to Visa. Furthermore, Binance charges up to 0.9 percent for ATM withdrawals and payments. The card must also be reissued for $25 if it needs to be reordered.
Cryptocurrency Mining Pool
Additionally, Binance launched two so-called mining pools to mine Bitcoin and Ether in 2020. Smart Pool enables miners to earn more profits by switching hash rates automatically to mine different currencies with the same algorithm. As part of the Smart Pool platform, SHA256 functions are utilized to validate blockchain transactions.
Users can participate in Binance’s mining pool by paying 2.5 percent on Bitcoin and 0.5 percent on Ether. In the Binance mining pool, the fee is applied to the cryptocurrency being mined.
Making investments
In 2018, the company started investing in other crypto and DeFi projects. Even though the company has led several funding rounds, many of its investments are not publicly disclosed.
Binance also makes money just like other investors when it sells shares for a higher price. The payment of dividends may be an alternative form of income in this situation.
Revenue, Funding, & Valuation of Binance
Crunchbase reports that Binance has raised a total of $25 million across eight rounds of venture capital funding and initial coin offerings (ICO). Several notable investors include Vertex Ventures, Sequoia Capital, Funcity Capital, Black Hole Capital, and others.
The company isn’t required to reveal revenue figures or valuation information because it’s privately held. In an interview with Bloomberg, CEO Zhao predicted a profit of $800 million and $1 billion for 2020.
Conclusion – Binance Business Model
In conclusion, Binance is a comprehensive platform that offers a wide range of services for users to buy, sell, and trade digital assets. Its ease of use, security measures, and value-added services have made it a popular choice for cryptocurrency traders and investors worldwide. Binance continues to expand its offerings and is committed to providing the best possible experience for its users.
