Crystal Le
This is an excerpt from the Lightspeed newsletter of yesterday. Subscribe to the newsletter for full editions.
It is often said that gold rushes were dominated by the sale of shovels.
You could argue that’s the case in crypto right now as well: As Solana eyes an all-time high, it’s the crypto exchanges — where users gain access to their magic internet money — raking in most of the revenue.
Binance is the dominant exchange in the East, despite the fact that decentralized exchanges are growing faster than centralized exchanges. These exchanges get their money from trading fees as well their Solana Validators. But onchain sleuths also discovered that both exchanges waste some of their funds due to inefficient transactions.
Binance and Coinbase both make money the same way: They take a portion of every trade. They can vary but their take rate is usually high. For example, Coinbase charged me $0.99 for setting up a $10 Bitcoin order. Solana generated 9% of Coinbase’s transaction revenue in the first six months of the year. This would amount to approximately $167,000,000 for the exchange. This figure is likely to rise in the second half as Solana’s price continues to show impressive performance.
Both exchanges run Solana validaters. Coinbase, Binance, and other large validators still charge their stakers higher commissions than the average validator. However, they are still the second-and sixth-largest validaters, respectively. Operating a validator — which votes on transactions to keep the Solana blockchain running — is quite lucrative for Coinbase and Binance these days.
If we assume a Solana reward of 8% per year, Coinbase will earn around $19m annually and Binance $13m. The numbers are expected to be particularly high this week. Blockworks Research says that tips and fees validaters brought in $110,000,000 last week. That’s an all-time highest by more than twice as much.
Coinbase and Binance are a good example of market inefficiency, as they dominate staked SOL despite their lower yields. This shows the need for platforms to simplify crypto’s complex technical aspects.
Coinbase, Binance and other exchanges may be spending SOL more than they need to.
Dune dashboard shows that Coinbase overpaid $19,000 for computing resources in the Solana network during the past week. Coinbase overpays on priority fees because it does not specify the exact number of compute units, which can be compared to Ethereum gas.
Binance also has its own glitches. Blockworks Research’s Dan Smith identified a Binance USDC transfer that paid $8 in priority fees — far higher than what the exchange should be paying for a stablecoin transaction that isn’t competing for blockspace like a memecoin would, for instance.
Do shovels make a lot of money? Yes, of course. However, their sellers still face a number of issues.
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