Jul 28, 2020
The Race to Zero Trading Fees Now Goes To Negative Fees
Revolutionising Trading Fees
Cryptocurrency exchanges have been heading towards cheaper trading fees for years. I for one don’t trust crypto exchanges with zero trading fees. I want exchanges I use to be profitable and thus secure. I know how much it costs to deal with security and regulation because we have run an exchange for 5 years.
The other thing about Zero trading fees is that markets tend to get distorted. Most zero-fee exchanges wash trade to show fake volume. Zero fees also make it hard for some traders to make money as spreads become un-naturally small.
So how do negative trading fees fix these issues?
Negative trading fees are only for traders making the market.
This means they place an order into an order-book that is not matched instantly. The maker orders fill the order-book up with liquidity for other traders to take. Takers are called market takers and because they buy orders from makers.
So market takers are charged a small fee. Half of that fee is given to market makers and the other half goes to the exchange.
Liquidity
We asked Vaultoro traders “what can we do better as an exchange? The answer that stood out more often than not was “please improve liquidity!”
The old chicken and egg problem that is liquidity. It is difficult to get traders into an illiquid market and but it’s hard to lift liquidity without more traders.
This led us to think outside of the box and offer negative trading fees on Vaultoro.com. We believe this is the general direction that crypto exchanges will be heading. Negative trading fees make so much sense because they incentive liquidity providers. This helps exchanges to prosper.
For full details on negative trading fees, be sure to check the Vaultoro.com’s Fee schedule page.
The Future of the crypto exchange industry
Crypto to crypto exchanges will eventually be fully decentralised. Although there are already a few out there, they are suffering from the same liquidity problem. As far as I can tell this is absolutely the way to make these decentralised exchanges more liquid. If decentralised exchanges don’t incentives market makers they will go elsewhere.
If we do see more Dapps become mainstream then decentralised exchanges need to be liquid to also make the dapps work. Why? Because no one wants to sign up to a centralised exchange, hand over KYC docs to use some little DAPP. they will, however, send eth into a decentralised version of shapeshift so they can use a DAPP.
Market Makers will make this decentralised future work. It all starts with exchanges.
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