Cryptocurrency exchange fees are a mess. When will they ever improve?


If you’ve ever tried to sell Bitcoin, turn it into dollars, and then put those dollars back into your bank account for a profit, you’ve noticed that – depending on the size of the transaction – Coinbase has withdrawn $ 20, 50 $, $ 100 …

You’ll never really know the exact amount until you’re ready to lock in and load. This is not a Coinbase problem. Gemini and Kraken’s pricing structure is also heavy. It’s not like the old E * Trade, where you sometimes paid up to $ 7 per trade. (Now it’s free). It was expensive, but at least you instantly knew how much the costs were.

If you are a regular cryptocurrency trader like me and like to cash out and reserve those fiat gains to buy durable assets or top up an IRA, then these exchange fees are sure to drive you crazy. When will there be more clarity on the fees?

There is no timeline for this. Maybe it happens quickly. Maybe it takes a few more years to get soaked for some transactions and withdrawals. Competition is the main factor that will drive down rates.

“I think over time the competition will intensify as more companies enter the space and trading fees are compressed,” says Martin Green, Co-Chief Investment Officer and CEO of Cambrian Asset Management in Mill Valley, California. He says retailers are the only ones. get soaked. “We don’t pay the kinds of fees that the retail business pays. “

Most exchanges are moving in this direction, with pro-trader versions of the product that cut fees or zero them, depending on the trade and the amount of trades. Every exchange is different. There is no definite language, so it is difficult to compare one to the other. It is not like comparing TD Ameritrade with E * Trade.

Why are the fees so heavy and difficult to pin down? Since every exchange is different and every transaction is handled differently on the blockchain, things like Ethereum ‘gas fees’ and multi-chain transaction costs come into play. Each individual transaction will not be settled on the blockchain through a single exchange. The cost comes from moving assets from the exchange to the chain.

Imagine your digital purchase is destroyed and goes through multiple pipes and each pipe charges a small amount until it goes through the Coinbase or Gemini pipe. It is a bit like that. Call this cryptocurrency blockchain for dummies. I won’t pretend to be a Wired geek on this one. I am only an investor.

“The blockchain fees that typically occur when withdrawing money from exchanges have increased significantly due to demand. The use of the United States dollar (USDT) is now mostly done on the Ethereum blockchain, but at the same time, many other coins use the same blockchain, which increases competition between transactions. The only way to prioritize which transaction to complete first is the fees. The highest fees earn, so to speak, ”says Adrian Pollard, co-founder of an exchange software company called HollaEx.

More importantly, the three exchanges listed here are all centralized exchanges (CEX) and they apparently have a different pricing structure than decentralized exchanges (DEX).

This is why I invested in 1 inch; for the DEX game. (And his unicorn logo is an average version of the Uniswap logo.) I haven’t done that well yet (bought in 3’s and near an all-time high), but I put in a bit more money for work in 1Inch Friday. I don’t own Coinbase.

The 1inch Network is a DEX aggregator (and an exchange project like Uniswap) that searches for better prices on multiple sources of liquidity, giving their exchange users the opportunity to benefit from lower rates than Coinbase. A DEX aggregator would be the blockchain version of what Expedia does for hotels.

DEXs operate without the intervention of a central authority or a third party.

“Decentralized exchanges rely on various blockchains and require specific smart contracts to function. On the other hand, centralized exchanges are managed by a third party, which collects the negotiation fees, ”explains Sergey Maslennikov, communications director at 1inch. “Additionally, CEXs are not entirely blockchain-based. Because CEXs are not on the blockchain, they are faster and it is possible to perform fiat as well as crypto transactions.

Last month, 1Inch announced that its 1inch API will be integrated with the Ethereum Dharma wallet to power its exchange functionality. Thus, investors’ transactions on Dharma will be executed by 1 inch, including buying tokens to a bank account and selling tokens to a bank account.

The proliferation of DEX platforms is good for cost compression.

“There are a lot of projects scattered over there. Everyone wants to become a leader in a niche, ”says Slavi Kutchoukov, the man behind the Slavi DApps platform (and yes, SlaviCoin.) The fees are much cheaper than on a traditional crypto exchange. We believe that a platform like ours offers people more than enough advantages to take them away from traditional stock trading platforms and enter the world of DEX.

Crypto exchanges have an advantage over traditional trading and financial platforms as they use crypto wallets while traditional platforms use banks to back up money. The cryptocurrency exchange industry will most likely centralize around a group of crypto-custodian exchanges and wallet providers, Pollard believes. This should help smooth out the different fee systems on the larger exchanges used by retail investors on a daily basis.

For example, PayPal helps alleviate fee concerns, as anyone can now send crypto to themselves for free on PayPal. This is going in the right direction.

Ethereum’s “gas fees” also don’t help with fee structures. Gas charges are the price paid to move crypto transactions through a blockchain, in layman’s terms.

Ethereum users have to pay between $ 50 and $ 90 for a single transaction. This can affect certain transactions in certain cryptocurrencies. To overcome these issues, many Layer 2 scaling solutions have been created, the most popular being Polygon, Optimistic Ethereum, Arbitrum, and zkSync. Users should use the gateway service to move their assets from Ethereum to one of these Layer 2 networks to dramatically reduce gas fees while increasing transaction speeds, but most retail investors won’t. no trade in this world. They just want to put $ 100 on a Cardano coin, or continue to fund their Bitcoin wallet and withdraw money from the table to trade BTC for USD and hand over real-world checking and savings accounts.

There is also a big difference between American and European stock exchanges.

“There is a tremendous amount of competition and global trade, but there is very limited competition for US investors,” says Green of Cambrian. “The markets outside of the US… they’re a multiple of the size here and the fees are much lower. “

This is also where most DEXs are located.

The big stock trading platforms are all owned by big branded financial institutions. But they were forced into price competition from trading platforms like Robinhood and WeBull (crypto and ETF).

U.S. options for crypto exchanges are small, but growing, which will lower fees over time. In fact, we have probably hit the peak of exchange fees.

“It’s frustrating to deal with today,” says Green. Cambrian takes an “agnostic” approach to buying cryptocurrency for its investors. They are less interested in valuation metrics and market matching and operate more like a data-rich quantitative fund. They trade on various exchanges. “It will get cheaper and faster over time,” he says. “Just remember how the internet was back then. When you talk about the internet of money, you are using the equivalent of a dial-up modem to connect … it takes for a transaction to complete. improve over the next few years.

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