Little-known cryptocurrency exchange BitForex recently made headlines after adopting the controversial trans-fee mining model, which helped its daily trading volume skyrocket to over $14 billion, with its most predominant pairs including Tether’s USDT.
The cryptocurrency exchange recently launched its BF token, which will be mineable through trading. This model, the trans-fee mining model, was first adopted by Chinese exchange FCoin which, at the time, hit a $5 billion daily trading volume with it.
#BitForex launches #BFToken on Aug. 2nd, and BF/USDT trading is available. BF mining is now live through #BTC/USDT, #ETH/USDT, #BCH/USDT three pairs. Welcome to mine and trade. https://t.co/spdcwttCnG pic.twitter.com/smvYT7YlKn— BitForex (@bitforexcom) August 2, 2018
According to CoinMarketCap data, trans-fee mining helped BitForex’s platform as its BTC/USDT trading volume alone is of $8 billion, over 8 times the trading volume of the world’s leading cryptocurrency exchanges Binance, Huobi, and OKEx.
BitForex itself was launched in June and is headquartered in Singapore, although its official registration points to the Republic of Seychelles. Its platform looks modern and asks for two-factor authentication (2FA) to let users trade.
On its website, the exchange claims the BF token’s total supply is going to be of 10 billion, and that token holders will get 80% of collected trading fees.
BitForex will give back 80% of its trading fees to BF holders. In the future, BF holders will have the right to participate in platform building major decisions and community management.
The Controversial Revenue Model
The mining model has been adopted by various cryptocurrency exchanges, including Bit-Z, Singapore-based Coinbene, and ViaBTC-owned exchange CoinEx, which saw its trading volume surge 24,000% with it.
Trans-fee mining sees the exchange reward users with their own tokens to pay for trading fees whenever they trade, essentially making trading free on the platform. On top of that, most exchanges distribute part of their revenues as dividends to token holders, presumably in an attempt to raise their value.
The controversial model helps exchanges hit enormous trading volumes thanks to its feeless nature, allowing bad actors to wash trade funds to pump volume. Notably, wash trading is banned in regulated markets as it’s seen as market manipulation.
Moreover, the model attracts high-frequency traders looking to stock up on the exchange’s native token, to then profit off of the dividends they’ll receive from collected trading fees. Once most of the exchange’s native tokens are mined, high-frequency traders move on – FCoin’s trading volume, for example, has dropped to $355 million.
Trans-fee mining has been criticized by various prominent figures in the industry with Binance CEO Zhao Changpeng claiming it’s a disguised initial coin offering (ICO). At the time he said:
“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? Are you sure you want to play against a price manipulator? The same price manipulator who controls the trading platform?"