Back to the analysis section

The Plague of Centralized Exchanges Charging Fat Fees Won't Last

Author: CoinLive News Team Jun 18, 2018 at 06:17

As a starter for the week, we have a Reddit post on the plague that represents some avaricious centralized exchanges. The post appears to have gathered enormous momentum, judging by the 3k+ votes and at CoinLive, we cannot wait to see the time when greedy-induced centralized exchanges start getting their act together by treating each new listing prospect with the justice and respect they deserve. For those legit ones that is. 

In what has become by now one of the most highly voted crypto-related Reddit posts in the last few days, Roy Huang, Co-founder at @FRESCO_NETWORK, and known in Twitter as @_akahry_, manifests his anger towards the centralized exchanges, noting that "NASDAQ as a centralized stock exchange only charges less than $200k for listing mega companies. Meanwhile, in the blockchain world, a lot of crypto exchanges trying to charge $500k+ listing fee. Road of decentralization impeded by greed."

This is a recurring issue that at CoinLive we have been covering for quite some time. The unregulated and opaque nature of the crypto market has led to a truly unacceptable and venal behavior by those in power of the exchanges, with bribery, corruption and criminal-like actions going completely unpunished given the absence of what has become by now a much-needed measure, that is, partial regulations. 

Roy Huang Exposes CEX Malpractices (Yet Again)

Roy Huang, expands by stating that at the end of the day, those CEX amassing a large (at times fictitious) pool of liquidity (users) "are being players & referees at the same time while being aggressively profit-hoarding. Imagine NASDAQ has to pitch investors of how much revenue they made, that’s essentially what crypto exchanges are doing, choking from pressure as startups."

Roy Huang goes as far as to expose his own personal experience, without revealing the actual exchange name (appears to be Chinese), in which their listing gets the following response from a top 30 exchange (see image below), "openly asking our company to use trading bots to create fake volume with 0 transaction fees."

Joseph Young‏, crypto influencer and analyst, known in Twitter as @iamjosephyoung, notes: "Big problem with cryptocurrency exchanges: Not only are some exchanges demanding higher listing fees than the Nasdaq ($225,000) and New York Stock Exchange ($300,000), they are openly asking blockchain projects to use bots to inflate trading volume."

The tweets mentioned above refer back to a widely acclaimed research report by Sylvain Ribes , titled "Chasing fake volume: a crypto-plague", where the author states "exposes why I believe more than $3 billion of all cryptoassets’ volume to be fabricated, and how OKex, #1 exchange rated by volume, is the main offender with up to 93% of its volume being nonexistent. I’ll endeavour to prove it by analyzing publicly available data." The report is a MUST READ for everyone. 

The Industry is Familiar of the Problem

During 2018, the fat fees charged by exchanges has been an issue widely reported by mainstream media, the likes of Bloomberg, Bitcoin News, just to name a few..

Bloomberg wrote: 

"Entrepreneurs are finding their dreams of easy crypto financing come at a high price. Digital token sales are letting young startups raise funds fast, but avoiding the world of venture capital and Wall Street’s other established channels isn’t free: Cryptocurrency trading platforms may be charging 10 times more to list tokens than what traditional exchanges demand for securities, according to a report on Tuesday by Autonomous Research."

Oscar Williams- Grut from Business Insider also wrote an article back in March, titled "Crypto exchanges are charging up to $1 million per ICO to list tokens: It's pure capitalism", where he states:

  • Cryptocurrency exchanges are charging between $50,000 and $1 million to list initial coin offerings, according to a Business Insider investigation.
  • "The exchanges are where the liquidity is — it's where the money is — so that's where the power is just at the moment," Michael Jackson, a partner at venture capital firm Mangrove Partners, told BI.
  • Exchanges are dominant now but that may change with tougher regulations and more standardised business models.

If one wishes to find out more about why are crypto exchanges charging exorbitant withdrawal fees, we highly recommend the following article by Bernard Peh, Founder of Whale Tech. Blockchain Developer and Technologist.

What's Next? Natural Cycle Will Kick Out Bad Actors

Changes are coming, but not as fast as one would like, especially in such a depressed bear market, which reduces the attractiveness of the crypto space to see new participants coming in, which at the same time, leads to a lack of potential adoption of new users into decentralized exchanges, by far the true solution to this plage of malpractices by a large range of avarice-led crypto exchanges. 

We have a growing list of DEX (Decentralized exchanges) such as IDEX, Waves, Bitshares, CryptoBridge, to name a few. Another one is Barterdex, which is currently up and running, and works with over 95% of coins and tokens. We have also seen how Coinbase, as reported via Bitcoinist, "has taken another massive step in establishing itself in the emerging cryptocurrency market. The largest crypto exchange platform in the U.S. has acquired decentralized exchange (DEX) platform Paradex."

Another example is Binance, which after its unreal growth seen during the first year of operations, decided to meet the demands of the market by announcing a decentralized subsidiary project. In a recent message, the exchange announced that:

"After extensively researching decentralized exchange frameworks and analyzing existing implementations, we believe significant improvements can be made in providing Binance users with a level of trading experience to which they are already accustomed. Centralized and Decentralized exchanges will co-exist in the near future, complementing each other, while also having interdependence."

What are the Current RoadBlocks for DEX Adoption?

If one wonders what exactly are the current roadblocks for DEX to go mainstream, other than a lack of awareness, it boils down to quite a few technological limitations explained below, with matching speed and liquidity of centralized exchanges probably the most apparent at the surface level. As a user, it still really undermines the experience of conducting transactions, while putting off those that aim to be involved in speculating with the intraday moves efficiently.

Some of the most palpable issues faced by DEX were eloquently listed by Anton Shestakov in a Medium article back in January 2018. 

● Secure storage of cryptoassets;

● Shutdown of the vulnerabilities of the central node of the exchanger or intermediary nodes;

● Searching for counterparties to complete transactions of a specific type;

● Increasing the transparency of executed operations;

● Cross-blockchain exchange (ether for bitcoin, for example);

● Addition of new functions for existing infrastructure (smart contracts for bitcoin).

● The speed of the entire infrastructure.

● The inadequate amount of liquidity

● There is simply no API to connect high-speed algorithmic systems or they do exist but are very specific and designed to solve a narrow range of problems.

To conclude, while the problem of speed and liquidity in DEX is a harsh reality, there is constant progress being made that will also lead into speed and control as order books tend to be sync on chain and fully transparent, resulting in no spoofing possible. In 2018 we have seen a tsunami of new DEX having transitioned from development into LIVE deployment, and the logical next step, as the industry matures, is to see wider adoption of the few that can best serve the market needs. We are yet to see which ones would be the ultimate winners, with “hybrid” ideas that allow conveying the pros and cons of a CEX and DEX not out of question. By combining the best of both worlds, we might also find a path towards a reconciliation of the existing problems.

Institutional-level Crypto News Feed And Market Scanner.

Lightning fast access to the news that matter covering 600+ crypto assets.

Want to be notified when we are launching this service? Find out more at CoinLive PRO.