While decentralized and centralized exchanges are the backbone of the blockchain-driven cryptocurrency ecosystem, centralized exchanges are still not configured for optimum usability, and decentralized exchanges present control issues that preclude their use by mass customer segments. Decentralized exchanges that can solve the control issue and scale can be successful. Here’s why–and how they can make this happen.
Traditional exchanges are antagonistic towards their users since they make money off of transaction fees, directly reducing investment returns by decreasing available investment capital. Inevitably, the volume and frequency of these fees have only increased over time as trading technology has advanced over the last 50 years. Because of this, investors are charged with increasingly specialized work to seek ever-higher returns that the layperson might not be able to access. Unfortunately, the investor never sees those fees again, whether in the form of returns or anything else. And while these fees vary in size, almost every prominent trading platform and security require they be paid prior to trading, buying and holding. The result of this compounded over time is that less and less people are able to maximize their use of exchanges even as net wages as a percentage of GDP have been rising since 1980, since the large portion of those wages have migrated to jobs in an ever-shrinking cluster of industries. There is simply no incentive to get the everyday person to invest, whether in traditional securities or cryptocurrency proper.
Enter Trans-Fee Mining
Cryptocurrency exchanges that incentivize users to trade cryptocurrency will be more successful than exchanges that do not. Trans-fee mining is one answer to this problem. Trans-fee mining is a business model brought to prominence by CoinBene and Bit-Z in June, and exchanges like FCoin and IQOption have also jumped on the bandwagon. It involves reimbursing 100% of traders’ transaction fees with an exchange-native token, allowing traders on exchanges using this model to leverage more capital than would be possible on others. FCoin has also gone a step further with its solution by launching FOne this quarter, a project of FCoin that allows community members to screen projects and create trading zones to generate even higher returns, faster.
Does Tran-Fee Invite Token Manipulation?
Some have doubts. Binance CEO Chengpeng Zhao recently remarked on the new model, “You pay transaction fees to the platform with BTC and ETH…then the platform pays ‘100%’ back to you with its token…How is this different from an ICO?” Furthermore, asks Chengpeng: “If an exchange doesn’t get revenue from transaction fees and solely profits from the price of its token … how would it survive without manipulating the token price?”
Such criticism hasn’t stopped other exchanges from seeking the FOne advantage: on the heels of FCoin’s launch, CoinBene and Bit-Z followed suit and initiated trans-fee mining on their exchanges. Within 24 hours, their trading volumes increased to $2 billion and $1.5 billion, respectively. CoinEx’s trading volume also increased by 24,000% when it did the same, suggesting the validity of the incentivization model, as well as the user acquisition advantage it presents to exchanges.
Yet, in launching FOne, FCoin extends its own capabilities, not only subsidizing trading fees but also presenting a platform for this to take place at a highly concentrated level, accelerating the traction of the trans-fee mining model in a controlled environment: FOne. The project allows funds, firms and fintech companies to create trading zones on the FCoin platform, provisioning them space to create vacuum trading environments and pursue returns isolated from mass market forces based on trading volume from users of their own coins. Coming on the heels of FCoin’s Growth Product Market (GPM), a product management feature on their main platform, FOne automatically manages users’ trades per trading zone and related projects. Its main function is to screen prospective project leaders for quality before granting them FCoin-certified status as a member of the FOne community. FOne then opens up trading data to the new community member. With FCoin’s ability to subsidize transaction fees, and FOne’s ability to manage projects in real-time and create trading zones, this combined use case of trans-fee mining shows the business model’s potential to both open up trading and investment to everyone, while enabling veteran traders to realize unprecedented returns.
There has been much hubbub about the validity of trans-fee mining and products that run alongside exchanges where that business model is in place. Old-guard industry stalwarts at established exchanges trust it less than the the companies that are putting it into action, while those utilizing the model are enjoying massive trading volumes allowing them to invest in new products to optimize their current functions. While it is too early to speculate whether or not this business model will become standard, it is likely that exchanges that use it will have greater flexibility to pursue product lines that optimize their current functions, such as project management, trading, and verification. To be taken seriously, proponents of the model will need to demonstrate stable value in their reimbursal tokens, as well as fend off legitimacy concerns by aggressively eliminating bots and rolling out features that strengthen their core platforms rather than creating and fueling hype. Those that do these things successfully will be in a position to establish trans-fee mining as a serious business model and lead later-generation exchanges to take up its usage.
What do you think about trans-fee mining? Could it help or hurt crypto trading? Share your opinions in the comments below!