Can trans-fee mining really be a turning point for cryptos?

Among trading platforms, Binance’s domination in terms of crypto-currency trading volumes has recently been challenged by a new business model that is taking hold across the new Asian exchanges.

The first exchange to offer this new commission system was China’s FCoin, born last May at the behest of Zhang Jian (former chief technology officer at Huobi), who managed to attract Chinese crypto-traders by repaying the commissions they generated in ether and bitcoin with FCoin’s own FT token. According to Chinese sources (FCoin is not listed on CoinMarketCap) the exchange has already made daily trades in the region of 5 billion dollars, something that makes Binance’s 1 billion dollars worth of trades pale in comparison.

Not to mention the data from the last 24 hours shown by CoinMarketCap for the Singapore exchange CoinBene, which recorded a daily volume of almost 2 billion dollars, while the Bit-Z exchange in Hong Kong has reached a number close to 1.5 billion dollars.

Bit-Z stated in its whitepaper that its BZ token will have a total issuance limited to 300 million. For each commission on transactions that a user pays Bit-Z in the form of bitcoins or ether, the platform will reimburse the user 100 percent of the value in its own token.

Bids started on June 18th for CoinBene and on June 25th for Bit-Z, following the announcements made by the two companies. The sudden increase in trading volume has led them to suddenly become among the first platforms worldwide, just a few days after their respective token emissions.

The Chinese specialized press has already raised strong doubts about “trans-fee mining”, literally “mining by commissions transfers”, as this new exchange model is called, which consists in “rewarding” the transactions made by traders with a token issued by the exchange itself and which can be used to compensate the commissions paid by traders for such transactions.

According to those critical of this system, users could be pushed to use bots to create fake transactions and accumulate tokens.

Other concerns pertain to the legitimacy of the system, which has all the characteristics of an ICO launch, where for each ether or bitcoin sent a certain amount of tokens is received, and, as is the case for ICOs, part of the tokens is reserved for the public and the rest for investors.

Zhao Changpeng, Binance’s CEO, also expressed concerns about the business model of these new exchanges, stressing their lack of sustainability in the long term. How can you trust an exchange that bases all its proceeds on its native token, when it owns 51% of it and controls its exchange and transactions? It would be impossible for the exchange to survive without tampering with the price of the token itself.

Meanwhile OKEx, the Hong Kong-based platform launched by OKCoin, also announced that it is rolling out a program to help 100 new exchanges adopt the trans-fee mining model, by offering technical support for the release of platforms that use this new concept. Provided they hold 500,000 OKB, OKEx-issued tokens.

From a monetary policy point of view, trans-fee mining is a slightly different model from the one used in other blockchain-based businesses expressing a specific token. Until now, all tokens issued as a means of payment for a certain service were also exchangeable outside the service itself. This made them fully subject to market laws.

In trans-fee mining, instead, tokens are trapped in a closed system forcing them to be very similar to those short-term monetary experiments referred to in the recent document by the Bank Of International Settlement (BIS).

In that paper the BIS mistakenly compared cryptocurrencies to some past monetary experiments, which for the most part, however, had a crucial difference compared to cryptos, which consisted of being experiments confined to closed systems with low chances of adoption in a free market.

The tokens in trans-fee mining are – as of today – similar to those pseudo-currencies mentioned by the BIS. This is not encouraging.

Zhao Changpeng’s view that these tokens will not survive without active manipulation of their value may therefore be correct.

However, in the world of blockchain you should never take anything for granted, so we will be closely monitoring this phenomenon to identify any new factors that the comparisons with past history today does not allow us to foresee.

The team at BlockchainTop Nres