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Centralized crypto exchanges (CEXs) have grown tremendously in popularity over the last few years as they have made it easier for users to invest in cryptocurrencies.
CEXs have benefited significantly from institutional investments, with over $3 billion in inflows last year. Binance has reportedly raised over $3 billion across four funds, while Coinbase has raised $573 million over 17 rounds, with the latest one coming late last year. This influx of institutional capital fuels the growth of the industry, builds industry credibility, and drives mass adoption of crypto. It also signals institutional investors’ belief in the potential of exchanges and the crypto industry.
In this blog post, we will explore the growth of some of the largest CEXs, including Binance, Coinbase, and OKX, and how they are benefiting from institutional investments.
Binance: The Leader in Trading Volume
Binance is the world’s largest crypto exchange by trading volume, with over 13 million users within a year of its launch in 2017. Most of Binance’s income comes from transaction fees, which accounted for 90% of the company’s earnings in 2021, generating over $20 billion. However, the market downturn in 2022 saw a decrease in trading volume, causing the annual revenue to drop to $12 billion, according to Cryptoquant. Despite this, Binance’s position as the market leader suggests that it is poised for further growth, although regulatory scrutiny could hinder its progress.
Coinbase: The Gold Standard of U.S. Crypto Exchanges
Coinbase was launched in 2012 to make it easy and secure for anyone to send and receive bitcoin. Today, it has over 11.4 million monthly transacting users, making it one of the most regulatory-compliant exchanges in the US. Coinbase’s revenue comes from two main categories: transaction revenue, generated by processing transactions for retail or institutional investors, and subscription and services revenue, composed of custodial fees, interest income, and subscription services offered on the platform. While transaction revenue is dependent on the crypto market, subscription and service revenue is an anchor to offset the choppy waves of crypto transactions. As of Q3 2022, transaction revenue was only a third of Q3 2021 revenues, but the year-over-year price of bitcoin had dropped by half. Subscription and services revenue, on the other hand, has grown steadily, benefiting from the rising interest rate environment.
OKX: A Seychelles-Based Exchange with Low Trading Fees
OKX is a centralized crypto exchange based in the Seychelles that offers exchange services, copy trading, trading bots, and derivatives to clients worldwide, except US residents. At the start of 2022, OKX was the second-largest exchange by volume but has since been overtaken by Coinbase and slipped into third place. In mid-2022, the company committed to continued growth and promised to increase its staff levels by 30% while other exchanges were cutting back. OKX has attracted users primarily due to its low trading fees.
The Future of CEXs
CEXs have made it easy for investors to buy and sell cryptocurrencies, and their user-friendliness has made them the on-ramp for most investors. The three exchanges discussed in this blog post, Binance, Coinbase, and OKX, are some of the largest and most popular exchanges globally. While they have benefited from institutional investments, they face regulatory scrutiny, market fluctuations, and competition from decentralized exchanges. However, their position as leaders in the industry suggests they are poised for further growth.
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