You may not have traded on Fcoin or Bitforex but you've probably heard of their names in the crypto trading circles. These exchanges are at the forefront of a relatively new business model known as transaction tax – or trans-fee – mining. Although innovative, the token model implemented by these platforms is not without controversy.
Read also: How Coinmarketcap incentives exchanges to report false volume
What exactly is the cost of mining transactions?
With a conventional cryptocurrency exchange, the maker and taker fee is levied on each side of the trade. The commission of the withdrawer is generally higher, on average 0.5-0.75%, while the producer (the person who sells the business and then provides liquidity) could pay closer to 0.25%. Normally, this commission is deducted at the point where the operation is performed. It is normally collected by the exchange in the form of ETH or BTC, or BNB if it is traded on Binance. Mining trades on transactions have a markedly different approach.
Transaction fees are the main way in which exchanges are made their money Transnational mining exchanges reverse this model by returning all commissions to merchants in the form of a native token. In fact, during promotional periods, usually when the exchange starts, these platforms could even offer a discount of more than 100%. In other words, traders are technically taking advantage, in the form of native tokens, for every trade they make. It seems too good to be true, and like all the things that fall into this banner, it is. But first, let's consider the positive side of paid extraction.
Trans-tax mining is a good way to be noticed
Fcoin did not invent mining, but it was the first exchange to make it popular. The platform, under the guidance of former CTO of Huobi Jian Zhang, launched its native token at the beginning of June. While Crypto Exchange Ranks (CER) reports "with the passage of time, Fcoin's trading volume began to fade, and the exchange fell in the ranks on CMC … The 8 August, noting the trend of rivals offering more than Fcoin has decided to implement its 10% bonus. "As a result of this initiative, Fcoin's volume has risen by around 7,000%, exceeding $ 2 billion, as can see below:
From the point of view of exchanges that have pioneered the trans-fee model – that is, Bitforex, Fcoin, Coinex, Coinbene and Coinsuper – proved to be an effective means of playing the system. Cryptocurrency market aggregators such as Coinmarket Cap have long excluded zero-fare exchanges, as their data distort rankings. But since exchanges such as Bitforex and Fcoin technically charge taxes, although with all the tokens collected from this dispensed to the community, they can jump to the top of the rankings and, in so doing, get new sheds of incoming referrals.
The other benefit to trade is that this system provides a means to circumvent an ICO. Rather than dealing with the hassles and legal issues associated with owning a tokensale, they can simply distribute tokens to the first users, with the high-frequency traders rewarded the most. Traders are still paying for these tokens, however, in the form of an ETH or BTC that must be paid for in exchange for native tokens.
Transitory mining is doubtful ethically and financially
Switching from "obscure exchange" to "top of Coinmarketcap" practically from one day to the next is definitely an effective way to get noticed . But there is a difference between recognition and being recognized for all the wrong reasons. The nature of mining transfer models, which incentivize early adopters, often using benchmarks, and whose pawns typically increase in value before crashing hard, has all the hallmarks of a Ponzi scheme. It is no coincidence that several of the exchanges that use this model, including Bitforex, were called up to report a false volume.
In a study conducted in the practice of transnational mining exchanges, CER found that 80% of the platforms examined promised to repay more than 100% of trading fees: Bitforex (120%) , Fcoin (110%), Coinbene (130%) and Coinsuper (125%). In addition, Bitforex and Coinsuper promise to use 80% of the transaction fees earned to repurchase trading tokens, while Fcoin and Coinex promise to redistribute trading income in the form of dividends.
CER concludes: "It is obvious that the implementation of" mining trans-fees "will likely lead to a huge increase in the volume of trade , but the graphs suggest that such a pump is very unlikely to be the result of a natural influx of traders.By using trading bots to inflate the volume, this could be someone eager to collect tokens repaid via "trade mining" and distribution of dividends . "
Exchanges have the right to adopt the token model that they consider best for their needs and those of their community. But traders should be cautious about the volume of trades reported and the promised dividends of this new breed of trades, whose operators will do their utmost to reach the top of the pile.
What do you think of transaction mining transactions? Let us know in the comments section below.
Images courtesy of Shutterstock and Crypto Exchange Ranks.
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