It is often said that, in a gold rush, money is made by selling shovels.
This case also holds true for the current crypto market. As Solana (SOL) approaches an ATH, cryptocurrency exchanges, where users can access and trade virtual assets, are reaping a large portion of the revenue.
Although decentralized exchanges have higher growth rates compared to centralized exchanges, Coinbase still dominates a large portion of the crypto market in the United States, while Binance dominates the rest of the world. These exchanges earn money from trading fees and from Solana validators, but on-chain detectives have also found that these two exchanges are wasting their money with inefficient trading processes.
Coinbase and Binance make money in quite similar ways; when users trade, they benefit a portion. The fee rates of different exchanges vary but can be quite high (for example, Coinbase charges $0.99 to set up a $10 Bitcoin trade order).
According to the latest financial disclosures, Solana accounts for 9% of Coinbase's trading revenue in the first half of this year, equivalent to about $167 million for the exchange. This figure is likely to increase in the second half of the year as Solana continues to demonstrate impressive price action.
Both exchanges operate Solana validators. Although they charge an 8% commission for stakers, the highest among major validators, Coinbase and Binance still operate the second and fifth largest validators, respectively. Operating validators, voting on transactions to maintain the operation of the Solana blockchain, is quite a profitable activity for Coinbase and Binance.
Assuming Solana's network rewards are 8% annually, Coinbase would yield about $19 million at current prices and Binance would earn $13 million. These figures will increase significantly this week as the commissions and fees that validators generated last week reached an ATH of $110 million.
Coinbase and Binance, although offering lower yields compared to competitors, still dominate the supply of staked SOL. This highlights the demand for platforms that simplify the complex techniques of the crypto space.
Interestingly, Coinbase and Binance are likely spending more SOL than they need.
According to data from Dune, Coinbase wasted $19,000 last week by overpaying for computing resources on the Solana network. Essentially, Coinbase is overpaying priority fees by not accurately specifying the number of computing units (similar to Ethereum gas fees) they intended to use.
Binance also faces a similar issue. Analyst Dan Smith identified a Binance USDC transaction that paid $8 in priority fees, much higher than what the exchange had to pay for a non-competitive stablecoin transaction in the block space.
