In the cryptocurrency world, there are numerous interesting ventures and solutions to take note of. When it comes to trading platforms and exchanges, the trading fees are often scrutinized first and foremost. Some platforms have come up with a crafty solution, known as negative trading fees. The bigger question is what all of this means and how viable the concept really is.
Establishing Negative Trading Fees
On paper, it is only normal for third-party service providers to introduce trading fees. After all, they provide the infrastructure necessary to conduct these trades, as well as custodial solutions for wallets and supported tokens. Combined with their customer support, the costs have to be recuperated in one way or another. This is why both market makers and taker spay a trading fee on virtually every major cryptocurrency trading platform in existence today.
However, things can be done completely differently. As COSS shows – along with a handful of other trading platforms – there is an option to remove maker fees from the equation altogether. Additionally, these platforms can successfully lower taker fees accordingly, albeit it seems unlikely those will ever go away in full. It is still a prominent development, which shows this industry can become a lot more efficient than ever before.
Creating new Incentives
The main purpose of introducing negative trading fees is to offer an incentive for those users who can bring more liquidity to the exchange in question. For smaller exchanges who have big ambitions, measures like these are certainly worth looking into. Although it may end up costing companies a fair bit of money to sustain this particular approach, one has to spend money to make money in any financial industry.
What About Native Tokens to Reduce Fees?
Depending on which cryptocurrency exchange one uses, the platform in question may very well have its own native token. There are the likes of Binance Coin, Huobi Token, Bitifnex’s recent IEO, and COSS has COS. In the case of this latter exchange, the company has confirmed traders who use the native token will be able to reduce their negative trading fees even further and thus earn move incentives. It is unclear if this incentive is awarded in this particular token, albeit that would appear to be the logical conclusion.
Not only will this appease a lot of users – everyone enjoys paying less money – it also shows there are many different ways to tackle cryptocurrency trading in this day and age. The only question that remains is whether or not companies can sustain this structure for a longer period of time, even if the expected liquidity increase does not materialize right away. For now, that question remains unanswered, although it is still too early to draw any real conclusions.
Why Isn’t Every Exchange Doing This?
That is perhaps the biggest question of them all in this day and age. In theory, nothing prevents the big exchanges such as Coinbase, Binance, Kraken, GDAX, and others to introduce negative trading fees for all users. At the same time, these companies are already well-established, thus there is no real reason for them to be as competitive in this regard. Since traders primarily care about the high trading volume, they won’t care too much about paying maker fees in this day and age.
Would it be better if every exchange took this approach accordingly? It would probably would, albeit it seems that will also create an unsustainable future. This measure is a viable tool for smaller exchanges to gain a competitive edge over other mid-tier trading platforms, but it might not be sufficient to let them compete with the “big boys” for quite some to come. There is only so much liquidity to go around as of right now, and it will be very difficult to increase that level without mainstream adoption.
Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency or digital currency.
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Source: The Merkle