Explaining what’s under the hood of a crypto exchange provider

*The original article is posted on CoinMarketCap. *

Behind the seamless execution of trades and the flashing order books lies a complex system that keeps crypto exchanges alive.

Buying and selling is just a tip of the iceberg. But what truly fuels the digital trading world?

The article is discovering behind-the-curtain sides of crypto exchanges, diving into three pillars of a modern digital asset operator: transaction fees, pools, and liquidity providers.

What Liquidity (Does Not) Mean For Exchanges

First and foremost: if an exchange is small, it does not mean it is unsustainable. The market position of a digital asset operator is primarily determined not by its trading volume, but by the exchange’s capacity for it.

What is even more decisive: the success is measured by the quality of addressing the needs of its target audience. The ones primarily include average transactional costs and liquidity.

Taking a look at five exchanges reveals that the more liquidity is required, the more additional providers it enrolls. And vice versa.

Each of the different operators is diverse by trading volume and, respectively, the available toolkits to ensure ‘smooth’ trading. Namely, while Gemini and Kraken are sustained by the institutional investors, WhiteBIT with its larger volume brings its own mining pool into play apart from traditional liquidity providers,

On the other hand, what unifies all of the exchanges is the transactional structure. And one is a matter of a deeper unit economy understanding.

The Economics of Transaction Fees

Transaction fees are the backbone of any cryptocurrency exchange. They serve as a crucial revenue stream while simultaneously shaping user behavior, market liquidity, and overall trading efficiency. But how exactly do exchanges determine these fees, and what strategies do they use to remain competitive?

Most crypto exchanges use a tiered maker-taker fee structure, where traders pay different fees depending on their role in the market. Makers (those who add liquidity by placing limit orders) usually enjoy lower fees or even rebates, while takers (who remove liquidity by executing market orders) pay slightly higher rates. These fees typically range between 0.05% to 0.25% of the transaction volume, with reductions for high-volume traders.

This model benefits both users and exchanges: traders enjoy lower costs as their volume increases, while exchanges encourage liquidity and deeper order books. Institutional investors and whales particularly benefit from this structure, as they move large sums across markets and demand competitive pricing.

Exchanges constantly fine-tune their fee systems to balance revenue generation with user retention. Several strategies are key:

• Dynamic Fees – Some platforms adjust fees in real-time based on market conditions, trading volumes, and network congestion. This ensures they remain attractive to traders while optimizing revenue.
• VIP & Loyalty Programs – High-frequency traders often gain access to VIP tiers, reducing their fees as a reward for volume. Some platforms also provide additional incentives like exclusive trading tools and priority customer support.
• Native Token Discounts – Many exchanges issue native tokens, which can be used to reduce fees—sometimes by as much as 25%. This creates an ecosystem where holding the exchange’s token becomes beneficial for regular traders.
• Alternative Revenue Streams – Beyond transaction fees, successful exchanges diversify their income through margin trading, staking services, lending protocols, and liquidity partnerships. This ensures financial sustainability even during periods of low market volatility.

As crypto trading evolves, so will fee structures. Competition between exchanges is pushing platforms to lower fees, introduce more innovative pricing models, and integrate decentralized finance (DeFi) solutions. The challenge lies in balancing sustainability with affordability, ensuring that exchanges remain profitable while keeping traders engaged.

Mining Pools As Liquidity Sources

Mining pools have long been an essential part of the cryptocurrency landscape, ensuring the steady creation of new digital assets. However, their role has expanded far beyond mere block validation—today, they function as key liquidity providers for crypto exchanges, opening up a whole new vector of exchange services.

At their core, mining pools aggregate computational power from multiple participants to increase the probability of successfully mining new blocks. Once these blocks are validated, the newly created assets are distributed among miners and often funneled directly into exchanges. This structured distribution process ensures a consistent supply of tradable assets, reducing liquidity shortages and improving overall market efficiency.

The main gig is: by regularly supplying assets to the market, mining pools contribute to deeper order books and minimize slippage in trading pairs. They also function as natural market makers, consistently selling mined assets to cover operational costs, which further enhances exchange liquidity.

Liquidity: The Driving Force of an Exchange

All the aforementioned aspects contribute to one and only concept that sustains any crypto exchange: liquidity. Henceforth, they act as liquidity providers, but ones are not limited to the pools and proper transactional framework.

At their core, liquidity providers function as market makers, continuously placing buy and sell orders to keep trading pairs active. Their operations rely on sophisticated algorithmic strategies, which dynamically adjust supply and demand to prevent extreme price fluctuations. These providers operate across both centralized exchanges (CEXs) and decentralized platforms (DEXs), ensuring that users experience minimal slippage and tighter bid-ask spreads.

On centralized exchanges, institutional-grade market makers deploy deep liquidity pools, ensuring that even high-volume trades are executed smoothly. These firms utilize advanced hedging techniques to mitigate risks while providing a steady stream of tradable assets. In contrast, decentralized exchanges rely on Automated Market Makers (AMMs), where liquidity pools enable token swaps without the need for traditional order books. In this model, individual users can contribute assets to these pools and earn passive rewards, democratizing the role of liquidity provision.

The presence of strong liquidity providers has a direct impact on market stability. By maintaining balanced order books, they prevent sudden price spikes and crashes, creating a more predictable trading environment. Their influence extends beyond just market health—exchanges also benefit financially from the increased trading volumes and transaction fees that liquidity providers facilitate. The faster trade execution enabled by ample liquidity enhances user experience, reducing frustration associated with volatile spreads or slow transactions.

Conclusion: What Brings Exchanges to Life

Transaction fees, mining pools, and liquidity providers – all these elements work in tandem to ensure smooth operations, market stability, and user engagement, making digital asset platforms viable financial ecosystems.

Together, these forces shape the efficiency and resilience of crypto exchanges, determining their long-term sustainability. As the industry matures, innovations in fee structures, liquidity management, and decentralized finance integrations will continue to redefine the space.

The future belongs to platforms that can strike the perfect balance between competitive pricing, deep liquidity, and robust market-making strategies—ensuring that traders, investors, and institutions can operate with confidence in an ever-evolving digital economy.