Cryptocurrency exchanges using the trans-fee mining (TFM) revenue model have, according to available data, poor traffic to volume ratios, meaning a small number of traders see large amounts of crypto change hands on their platforms. Despite using incentivized trading schemes to generate 'fake volume' these exchanges have grown their market share.
According to CryptoCompare’s January 2019 Exchange Review, cryptocurrency exchanges using the controversial mining model have grown to represent 15% of the crypto ecosystem’s trading volume, up from 12%. In January alone they traded $25 billion worth of crypto in the first month of the year.
The number one trans-fee mining exchange was CoinBene, which by itself traded $10 billion. It was followed by ZBG, which traded $6 billion, and by EXX, which traded $5.5 billion. These platforms’ trading volumes have grown, although overall crypto exchange traffic went down.
Per the report, traffic notably dropped 13.5% in January, with spot trading volumes accompanying it with a 12.4% drop. The total amount of unique visitors cryptocurrency exchanges received in January was 10.4 million, down from 12 million in December.
While their trading volumes are high (red for TFM exchanges), the amount of traffic their platforms see is noticeably low. Traders on these platforms are incentivized by the revenue model to trade large amounts, in order to be rewarded in tokens.
The controversial revenue model was initially introduced by FCoin, which managed to see an over $5 billion daily trading volume at the time thanks to it. Some called it a “disguised ICO” over its nature. Its incentives may be questionable, as CryptoCompare’s report puts it, grouping it to zero-fee exchanges:
Transaction fee mining exchanges rebate 100% of transition fees in the form of their own exchange tokens. This might give traders an incentive to trade more to receive more tokens which often have valuable features such as voting rights on the platform or a dividend. Both of the above can lead to wash trading.
Although these crypto exchanges have large trading volumes, this doesn’t mean their order books are secure. CryptoCompare analysis from October showed that on TFM exchanges it would take a very small amount of their daily trading volume to see prices drop 10% on their platform.
Specifically, an analysis of CoinBene’s order books showed it would take just 0.3% of its trading volume to see the price of a crypto drop 10% on it. In comparison, it would take over 30% of the daily trading volume exchanges like Kraken and Bitstamp see to see prices drop 10% showing much greater stability in the more established and trusted exchanges.