What's the real business model behind closed-source wallets

[Chibit01]

How do wallet developers make their money? I'm not referring to the open-source bitcoin only wallets which their funding is from donations and personal help. I'm referring to the rate at which almost all centralized exchanges out there now have their own personal wallet, which they claim is none custodians but its close source, so I'm asking how they are really making money from owning these wallets. To the best of my knowledge, transaction fee don't go to wallet owners, or are their earning solely dependent on the staking as most of them are multiple chain wallet and support staking together with bridging

The rapid growth of new wallets, especially how centralized exchanges are owning there, have left a lot of unanswered questions in my head.

[OmegaStarScream]

I would say that affiliate programs or partnerships with swapping platforms represent most of their revenue. When you have hundreds of thousands or millions of active users, that quickly translates to millions of dollars a year.

[Cinexa]

I asked AI about it, and it said the same thing as OmegaStarScream. Centralized exchanges don’t earn from blockchain transaction fees, those go to miners/validators. Instead, their wallets are funnels into the exchange’s broader monetization ecosystem - trading, spreads, staking commissions, lending, and premium services. The wallet is less about direct profit and more about locking users into their platform, ensuring all activity generates revenue for the exchange.

[Cookdata]

I'm referring to the rate at which almost all centralized exchanges out there now have their own personal wallet, which they claim is none custodians but its close source, so I'm asking how they are really making money from owning these wallets. To the best of my knowledge, transaction fee don't go to wallet owners, or are their earning solely dependent on the staking as most of them are multiple chain wallet and support staking together with bridging

It's liquidity extraction and indirect exploits.

You know there is this phrase "not your keys, not your coins", it's a campaign to discourage people from using centralized exchanges as custody of their coins due to the exchange hacks, bankruptcy and general problems that centralized custody are known for like freezing coins, ask for kyc and intentionally share data with whom they want.

Some of the centralized exchanges start with this web3 wallet embedded inside the centralized exchanges where you can create recovery phrase and control your coins from there and switch between the exchange and the wallet and the tricky thing they let users know is that it's there custody not the exchange but inside the exchange, check Binance they have web3 wallet, OKx have one, Bybit has one too and all of them do copied each other.

They came with these collaborations with projects to make users to stake coins, transfer coins between the web3 wallets and the exchange to attract users, this draw users closer so they can move coins between their web3 wallet and the exchange, this is how they make benefits from the wallets they created.

[Amphenomenon]

I would say that affiliate programs or partnerships with swapping platforms represent most of their revenue. When you have hundreds of thousands or millions of active users, that quickly translates to millions of dollars a year.

They could also have an inflated tx fee which may not be too much but gives them something fair. It's often common for closed source wallets to have more expensive tx fee.

Also, they could offer premium services which customers may be attracted to use, while CEX having it will also be for brand marketing.

[PX-Z]

They could also have an inflated tx fee which may not be too much but gives them something fair. It's often common for closed source wallets to have more expensive tx fee.

Not really, say Trustwallet, fees there are just like the same on any non-custodial wallets and its base on current back logs of the network. Closed-source wallets are equals to custodial wallets just like CEX. Most closed source wallet have partnered exchanges/swap on the platform, sells their users cookie data, and earned through affiliates just like had mentioned above. APIs from closed source partners too and many more.

[terrific]

It's a numbers game.
Let's don't go far with the business model of social media. If the product is free then the users are the products.
As explained by the others, the data that the sell to the advertisers is what they're mostly earning with.
Add to it the little commission of the fees that they get and if it's done by the millions or hundreds of thousands, that translates to revenue.

[un_rank]

Centralized exchanges want to build an ecosystem that provides a service for the every need of their users. In such a system, every product does not have to give back a profit as long as the entire brand sraya profitable and attracts more users. If having a wallet and calling it non custodian will help them build trust among their users it becomes a form of promotion.

They also collect your data which is very valuable today.

- Jay -

[OcTradism]

How do wallet developers make their money? I'm not referring to the open-source bitcoin only wallets which their funding is from donations and personal help. I'm referring to the rate at which almost all centralized exchanges out there now have their own personal wallet, which they claim is none custodians but its close source, so I'm asking how they are really making money from owning these wallets. To the best of my knowledge, transaction fee don't go to wallet owners, or are their earning solely dependent on the staking as most of them are multiple chain wallet and support staking together with bridging

The rapid growth of new wallets, especially how centralized exchanges are owning there, have left a lot of unanswered questions in my head.

They have to join the competition with other centralized exchanges, other companies like wallet companies too. Because if they don't build their wallets, they will lose users to other exchanges that have own wallets for users. It's clearly that with centralized exchanges, which have licenses and have to obey regulations on their exchanges, they will not be able to have non custodial wallets. It's hard for them to be well with AML and KYC enforcement from governments and surely no centralized exchanges want to take risk and have legal problems later.

With users, they are free to choose among many available wallets, custodial to non custodial, close source to open source. No one force them using custodial wallets or close source non custodial wallets.

[Cookdata]

I would say that affiliate programs or partnerships with swapping platforms represent most of their revenue. When you have hundreds of thousands or millions of active users, that quickly translates to millions of dollars a year.

They could also have an inflated tx fee which may not be too much but gives them something fair. It's often common for closed source wallets to have more expensive tx fee.

Also, they could offer premium services which customers may be attracted to use, while CEX having it will also be for brand marketing.

Trust wallet do these a lot but estimation of fees doesn't go to wallet creators because they are not miners or validators for altcoins and even if they are validators in other chains, they certainly doesn't control all the validators, they can't be in control of everything.

Some closed wallet have tokens and have allocated some percentage to their team, they also have foundation which of course belongs to the team. Trust wallet for instance has TWT token, that's how they survived and they are manage by Binance.

[rat03gopoh]

One thing I'm wondering is that they're not just wallets; they're businesses. Yes, they have to protect their code from being read, as that's where their business objectives are revealed. Otherwise, users will know what information they're collecting, even if it's not a seed phrase (similar to how Google reads cookies). That's why closed-source wallets are updated more frequently, but make no mistake, it's not always about security, but about features or integration with other services.

[ImGenius]

Wallets like MetaMask and Trust Wallet don't earn from normal transaction they earn mainly from features like swapping bridging and many more. Sometimes users use the wallets inbuilt features instead of connecting the wallet elsewhere to swap or bridge. wallets also partner with other crypto projects bringing campaigns through which they earn. Although those earnings is small for single user when combined with millions of user it become huge.

[Stalker22]

~
The rapid growth of new wallets, especially how centralized exchanges are owning there, have left a lot of unanswered questions in my head.

You said it yourself, centralized exchanges own those wallets.  This should be enough of a clue for you.

They arent building these apps out of the goodness of their hearts.  Even if a wallet is non-custodial (meaning you hold your own keys) it is a massive cash cow for exchanges.  If you use their wallet to instantly swap Token A for Token B, or if you buy crypto with your credit card directly inside the app, they charge a hefty premium.  Also, a lot of these wallets let you stake your coins for passive income with one click.  What they dont advertise loudly is that they run the validator nodes in the background and quietly pocket a percentage of your total yield as a "management fee".

[Mhizlove]

I would say that affiliate programs or partnerships with swapping platforms represent most of their revenue. When you have hundreds of thousands or millions of active users, that quickly translates to millions of dollars a year.

I will agree that affiliate partnership can contribute alot of money to their income, most especially when the platform already has a massive user base. But I do not think that every platform will depend mainly on this alone. Alot of them still generates revenue through premium services, trading fees and other products that they do offer. At the end of the day, the more loyal and effective users are, the easier it will be for the platform to earn From different angles or sources rather than replying only on one revenue source

[KiaKia]

How do wallet developers make their money? I'm not referring to the open-source bitcoin only wallets which their funding is from donations and personal help. I'm referring to the rate at which almost all centralized exchanges out there now have their own personal wallet, which they claim is none custodians but its close source, so I'm asking how they are really making money from owning these wallets. To the best of my knowledge, transaction fee don't go to wallet owners, or are their earning solely dependent on the staking as most of them are multiple chain wallet and support staking together with bridging

The rapid growth of new wallets, especially how centralized exchanges are owning there, have left a lot of unanswered questions in my head.

Closed wallets have some extra features that makes them money, those features are only useful for people who really want such services like.

Built in exchanges and swaps.
Trading in app
Staking

It's still all down to Gas fee too, because when users trade on Trust wallet for example, they are the ones to take the gas fee for themselves, they are working very identical to bank accounts and bank apps, you will see where to gamble or invest into stocks or make some money back locking your money for some times.

[joniboini]

OP, you make me remember how a wallet developer offer a paid package (yearly and lifetime) just a few months ago. I remember reading it in my local board. They argued that this paid plan has their own market, which is obviously met with skepticism. Especially when some of those features are present in various wallets (and free). I'm not sure if other developers will try this, but I bet it's easy for a closed-source one to do this just like how Ledger offer a cloud split or whatever that was for a wallet seed phrase. I doubt it will last long though.

[SamReomo]

Those closed source exchange wallets mostly earn revenue from staking as that's their best way to earn revenue. But, other closed source wallets can earn money mostly by selling their hardware product. Some of those closed source exchange wallets also earn some commissions via swapping platforms or aggregators.

[moneystery]

Closed-source wallet companies won't develop their products without a clear long-term incentive. They are businesses, so they ensure that the products they offer generate revenue.
Typically, they create features that generate revenue. For example, Exodus is a crypto wallet with features like crypto swaps, staking, and integrations with third-party providers. These features generate revenue through service fees, which can benefit the application developer. This profit allows them to continue developing and maintaining the wallet.

[Coyster]

For example, Exodus is a crypto wallet with features like crypto swaps, staking, and integrations with third-party providers.

You're right, though i am pretty sure they also make money when customers who use their in-built swap service get fleeced off their money. There's no way they don't have a part in it and they have kept a lot of selective scammers in their list of third party swap exchanges for this long, though that's not a conversation for this thread.

OP, you already have your answer, and it's okay whichever way they make money legally. Though i must add, even for the sake of it, that you should not keep a large amount of your funds in closed source wallets, stick to open source softwares.

[PrivacyG]

I am assuming their business model is significantly covered by data collection.  Your information costs a lot more than you probably think.  Considering what OmegaStarScream said, if you have a million people whose collected information you can sell for even as little as 50 cents per person, you already have half a million Dollars in revenue.