It is a common occurrence on crypto exchanges for market makers to get struck by unreasonable fees. Many popular exchanges seem to treat market makers equally to market takers, even though they are a necessary element of liquidity. Market makers regularly face up to 0.2% fees. When you consider the sheer importance of market makers to an exchange, this rate seems frustrating and obstructive.
Why are market makers so important?
For an exchange to survive, it needs an ample following of market makers. These are traders who buy and sell assets by matching orders with other traders on the same exchange. By doing so, they create liquidity within that market, which is needed if you want to supply an influx of customers or allow for healthy and seamless withdrawals. If market makers disappear, then the exchange they are on begins to collapse. For instance, one of the main reasons markets choose to de-list specific coins and tokens is because there are not enough market makers to produce liquidity.
It is clear that these traders are a necessary element of the ecosystem, so why are they so extortionately charged? For instance, if you take Kraken as an example, some of their market makers are charged 0.16%. Huobi’s fees for makers are even higher at 0.2%. Bittrex charges all traders (makers and takers) 0.25%. These are all counter-intuitive rates, considering the nature of the market maker’s role.
Solutions to this problem
This system of overcharging market makers needs to come to an end if exchanges want to keep their volume and liquidity intact. This means that we need to re-think how market makers are treated. One exchange which is placing this at the forefront of the discussion is ETERBASE. With their fee structure, market makers are never charged more than a baseline of 0.1%, but more importantly, the fee drops dramatically for users who hold XBASE tokens. Depending on how many tokens they hold, rates can drop into negative numbers. The perk – market makers can be paid for providing liquidity to the market.
Comparing this to the fee structures of places like Kraken, Huobi, and Bittrex, it is clear that the exchange truly values and understands the role of the market maker.
If exchanges want to continue their businesses, they need to respect the importance of market makers. The cryptocurrency market is maturing, meaning that businesses, such as exchanges, need to as well. No longer can an exchange merely assume that traders will accept any fees. We need to move forward into an ecosystem that respects the necessity of market makers and apply our fees accordingly.