- What fees are associated with cryptocurrency transactions?
- How to save money on crypto transactions
Cryptocurrency exchange fees are charged on every transaction — this is what blockchain works like. However, every time another intermediary is involved in a transaction, new costs may be incurred. For those users who trade actively, these fees can add up to quite a lot.
One fee which is always charged in any cryptocurrency wallet is a miner fee. This is a fee equal to a small percent of the transaction sum which is needed to add the information to the blockchain. If you do not want to pay and try to adjust the miner fee to zero, your transaction will never get confirmed. Miners will not be eager to solve the difficult hash puzzle just for the sake of it. Miners generate blocks for profit. This is why we always have to charge a certain amount. Most often, this sum is quite small, and all cryptocurrency holders accept it.
Apart from the standard miner fee, there are many other cryptocurrency fees incurred by other parties that try to make some profit from it. As soon as some intermediate party appears between your wallet and transactions, you will be charged fees.
Crypto exchanges charge transaction and trading fees. Below, we will discuss several types of exchange fees:
Deposit and withdrawal fees
A cryptocurrency exchange is a platform that allows customers to trade cryptocurrencies. In order to do that, a customer needs to deposit cryptocurrency to the platform or withdraw it. Exchanges charge fees for depositing and withdrawing crypto.
Exchanges charge trading fees for converting cryptocurrencies into fiat money or other cryptocurrencies, and vice versa.
Most major crypto exchanges, for example, Binance or FTX, charge different trading fees depending on whether the user is a taker or a maker, with maker fees being lower than taker fees.
Interest, Borrowing and Liquidation Fees
Such fees are incurred when users participate in margin trading by borrowing funds. The sum depends on the amount you borrow on margin and the interest rate. However, this type of trading is rather risky. Among other things, if something goes wrong you might be subject to liquidation of the assets. In this case, you will also be charged a liquidation fee.
Most exchanges offer their regular users certain fee discounts. Usually, these discounts have a VIP tier structure with regular users who can qualify for a higher VIP tier depending on the trading volume over the last month. In this case, they will be entitled to lower fees. Exchanges establish their own various requirements for achieving the VIP tiers and receiving discounts.
For example, the VIP program of FTX Exchange is focused on professional and high-volume traders. In order to enter the first VIP tier, the trading volume of a user should be no less than 0.5% of the total trading volume of the exchange over the last month.
Binance users need to achieve a certain volume of trading over the last month and have a specified number of Binance Coins (BNB, Binance’s token) to enter the VIP program. To qualify for the first tier, a user must own at least 50 BNB and have a trading volume of at least 50 BTC.
Although Coinbase does not offer a VIP program, the exchange charges a flexible fee for transactions and for withdrawing cryptocurrency. These fees depend on such factors as the method of payment, order size, market conditions, and many others. You will only find out the amount of the fee when you carry out a specific transaction.
The information about the VIP programs of Kraken is not publicly available. However, users can enquire about account management services by e-mail.
Discounts for holding exchange tokens
Some crypto exchanges have their own tokens which allows token holders to get certain discounts.
For example, the FTX exchange has a native token known as FTT. Holders of this token are entitled to trading fee rebates and discounts on the over-the-counter services. The amount of a discount directly depends on the number of tokens held. Investors who hold a lot of tokens automatically obtain a VIP status and are offered lower trading fees.
Binance’s native token is BNB. This exchange offers to use BNB as payment for trading fees, which entitles users to a 25% discount on trading fees and margin trading fees, and a 10% discount on futures trading fees.
Woo X also has a native token known as WOO. Users are entitled to discounts on taker and maker fees if they hold at least 300 WOO tokens. They can even qualify for 0% taker/maker fees by holding as little as 1,800 native tokens. WOO can also be implemented for yield farming and be used as collateral for lending and borrowing on certain DeFi platforms.
Discounts offered for staking native tokens
Sometimes, exchanges offer users additional rewards for locking their exchange tokens for a certain period. These rewards may include fee rebates, yields in the form of free tokens, higher airdrop rewards, as well as offers to take part in the IEOs (initial exchange offerings). This is known as yield farming.
For example, FTX offers users to stake the FTT token to get discounts on maker fees, free votes, higher Serum airdrops, free withdrawal of limited sums, as well as participation in the IEOs. The more FTTs staked, the more benefits can a user receive.
Binance also offers users Binance coin yields for staking their native tokens in the Vault.
Although staking BNB itself does not come with any additional benefits, users a 25% trading fee discount when paying with Binance coins.
WOO X also offers users discounts on trading fees in return for staking WOO tokens, as we already mentioned above.
Coinbase and Kraken do not offer to stake their native tokens.
In the case of active investments, crypto exchange fees add up to quite a lot. However, crypto exchanges also have to compete for users as they are interested in operating more transactions and earning more money. One of the competitive advantages they can offer is a fee discount.
Because of that, the majority of crypto exchange platforms offer their regular and high-volume users to get discounts and participate in VIP programs with various tiers. Some crypto exchanges, for example, Binance and FTX, have come up with other incentives, such using their own exchange tokens or staking programs to offer additional passive income to their users.