Some exchange operators have found a new trick to artificially pump up their trade volume. They are directly rewarding users with their own issued tokens for generating transactions, something critics call a backdoor ICO ripe for manipulation.
Trading as Mining
High trade volume has been a measure bitcoin exchanges competed on for a long while now. And some supposedly used various methods just to increase their numbers along the years, from zero-fee transactions to encouraging algos. Recently there were even accusations that some hired their own market makers just to constantly trade and even counting both sides of any trade, effectively doubling the real action. And now some have started to just pay traders for using their platforms instead of waiting for organic growth.
Apparently invented by Fcoin, a platform recently founded by former Huobi CTO Zhang Jian, the “transaction fee mining” model is meant to help clients offset trading costs by handing them exchange tokens. While this is a new development in crypto, it has precedents in other fields. FX and stock brokers sometimes offer cashbacks or other incentives (such as free iPads) dependent on volume to increase client trading. Here, however, the tokens are arguably a form of dividend-bearing securities, and offering control in the exchanges themselves … which is something that can not happen without crypto tokens.
Stealing Binance’s Thunder?
A number of exchanges using the trans-fee model have popped up following Fcoin, including Singapore’s Coinbene and Hong Kong’s Bit-Z. The platforms have been able to rack up massive trade volume numbers in short time thanks to this method. Naturally, the company that is most upset about this is Binance which, of course, has its own token but distributed it in an ICO.
Binance CEO Changpeng Zhao slammed the practice as a disguised ICO on Chinese social media and reportedly stated: “If an exchange’s survival depends largely on the price rise of its own token rather than on transaction fee earnings, it has to drive up the token price. In this regard, less experienced traders and retail investors can hardly have the upper hand in the trading competition with those crypto whales, especially the exchange whale.”
Do you care about and trust the reported trade volume by exchanges in the bitcoin ecosystem? Share your thoughts in the comments section below.
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