The transaction fee rate system is an extremely important part of the exchange. This section will introduce the overall rate system of the cryptocurrency trading platform, including pricing strategies for transaction fee rate.
1. Meaning of transaction fee rate
For exchanges, the pricing of the transaction fee rate is directly related to their income.
For users who are sensitive to the fee rate, their profitabilities are affected directly by the rate. Favorable rates for users can allow users to obtain profit opportunities when prices fluctuate within a narrow range. In this way, the exchange can make considerable profits by smaller margins with greater trading volume.
Exchanges can indirectly guide and promote customers' trading behavior through good fee rates.
2. Transaction Fee Rate pricing strategy
Transaction fee rate pricing is a way of doing business for exchanges. At different stages of the business, different pricing strategies need to be formulated based on different goals. Exchanges generally use four pricing strategies: competitive pricing, defensive pricing, revenue pricing, and instructional pricing. The following will briefly analyze the four pricing strategies.
2.1. Competitive pricing
Applicable scenarios: early stage of new business, old business catching up with competition, and downturn of the industry.
Pricing strategy: At a lower rate than the competitors’, attract rate-sensitive users to trade on our exchange. Income can be appropriately traded.
Case: In the initial stage of contract business, zero-rate or even negative rate for Makers is used to attract users, and second-tier exchanges fee rates are generally lower than first-tier exchanges.
Case study: The Huobi contract was launched later than the OKEx contract. When the business was first launched, in order to attract users, the strategy of 0 fee rates for both Maker and Taker sides was adopted. Compared to OKEx's Maker 0.02% and Taker 0.03% fee rates, users can earn an additional 0.02% to 0.03% in each transaction on Huobi. At this time, since Huobi was the catcher, its contract fee income was relatively low, so it could be coped with. If OKEx followed to decrease the fee rate, the fee income of OKEx will decline sharply because fee income from contract transactions accounted for 80% of the total fee income.
This is a typical barefoot competition that is not afraid of shoes. The weaker side is relatively weak and has controllable losses, so it can adjust its strategy flexibly. The strong side seems to be strong, but when dealing with the competition of the weaker side, there are many factors that need to be considered, and their strategies cannot be adjusted at will.
2.2. Defensive pricing
Applicable scenario: Competitors attract rate-sensitive users from your exchange with low fee rates, and your exchange's trading volume drops sharply.
Pricing strategy: Synchronously decrease the fee rate at a rate slightly higher than or equal to the rate of competitors, cooperate with your brand and word of mouth, and reversely attract competitors' users to come to your side to trading. The decrease in revenues from the reduction in fees can be offset by the increase in trading volume.
Case: Binance continues to indirectly decrease the fee rate in the form of increasing the referral commissions ratio, and Huobi Global launched the All Star VIP 6th Anniversary Fee Promotion to compete with it.
Case study: The transaction fee is an important income of Huobi, and the fee rate of Huobi has always been the highest point in the industry. Facing Binance's competitive strategy of constantly attracting Huobi rate-sensitive users with low fee rates, Huobi cannot rashly follow the fee reduction and enter the rate-killing market, otherwise it will fall into the rhythm of the other party and its revenue will also fall sharply. But how to deal with the competition of Binance? At this time, need to analyze the advantages and disadvantages of Huobi and do defensive pricing.
The core of defensive pricing is to identify its own advantages and the scope of impact, make targeted adjustments to make losses controllable and even attract users from competitors.
The advantage of Huobi is that its own brand and reputation have always been the leader in the industry. At the same time, its transaction fee rate has always been the highest point in the industry. Therefore, lowering the rate will allow users to feel obvious concessions and win users' favor. In addition, not all users are sensitive to the rate, so the adjustment of the fee rate can be concentrated in the rate-sensitive range, without requiring much additional adjustment. Huobi finally launched the All Star VIP 6th Anniversary Fee Promotion, which was mainly aimed at professional users and implemented as an event. The core of the plan is:
1. Huobi can control the whole plan flexibly, because Huobi made it as an event. The plan could be adjusted anytime according to the actual situation during the event. And when the event ends, Huobi can also decide to extend the event deadline or not based on the actual situation;
2. Mainly for professional users, so ordinary users who are not sensitive to the rate are not affected, and basic income can be guaranteed.
2.3. Income pricing
Applicable scenarios:
1.Unilateral market with sufficient profit space.
2.Your exchange has a leading position in the industry, and is preferred by most users.
Pricing strategy:
1.When the market is unilateral, the user's profit margin is large enough, and the transaction fee rate has little effect on users' revenue, then you can increase the rate appropriately by trial operation;
2.When an absolute leading position occupied, you can try monopoly pricing to make up for the expenses incurred in the previous period.
Case: Huobi set 0.2% as a fee rate in 2017-2018, and the transaction fee rate of Huobi's OTC is high as Huobi's OTC business has a leading position.
Case study: It was a big bull market for 2017, and users' profits are several times profitable, so the 0.2% fee rate had little effect on users' profit. At this time, a high fee rate could be used to earn higher transaction fees when users were not sensitive.
2.4. Instructive pricing
Applicable scenario: When the market Taker and Maker are out of balance, the exchange can guide users to the missing side through the fee rate.
Pricing strategy: When one party is out of balance, the strategy of the missing party can be appropriately reduced. In extreme cases, the exchange can set a negative fee rate to attract users.
Case: negative fee rate for Makers in contract trading, and 0 fee rate for some spot trading pairs;
Case study: Market depth is an important indicator of trading. In order to ensure the smooth trading for users, the exchange needs to have sufficient user orders to form a good market depth. When the contract business started, there were fewer users and fewer pending orders, resulting in poor handicap depth and easy to occur Wearing. At this point, the negative rate for Maker could be applied, and when users place pending orders, they can get additional benefits. This directly stimulated many users to switch to become the Maker, forming a good market depth. Subsequently, the contract business developed rapidly, and this strategy could be stopped after the number of users increased, and the depth of the market was guaranteed.