In order for bitcoin derivatives markets to fully mature, the maker-taker model must be brought into review, according to a report from derivatives platform ZUBR, is a digital assets derivatives trading platform for professional traders, hedge funds, HFT traders and other parties who bear cryptocurrency price exposure risks as a part of their operational activity. The platform went live early March 2020 and tallied some $25 million in trading in late March when it officially launched.
The report on bitcoin “maker-taker” pricing models reveals that best execution practices are being smothered while disadvantaging long-term investors. ZUBR’s report, covering data from 2010 to 2020, examines asymmetric fees, current and future implications for traders and the effect the maker-taker pricing model has had on Bitcoin and market maturity.
Key findings from the report include:
Asymmetric fees diminish traders’ profits: while maker rebates increase liquidity initially, the benefits diminish as more high-frequency traders compete against each other, reducing profitability and order book size. This leads to less effective markets.
Maker-taker model does not keep spreads close during high volatility: price discovery becomes an obvious problem as liquidity providers account for their net trade after rebates. This skews the trading spreads, and the real value across exchanges differs primarily due to fee structures. For example, up until March 12, just before markets began experiencing high volatility, BitMEX spreads went from an average of 0.28% to 4%.
Takers pay up to 0.05% more than makers: maker rebates are akin to marketing tactics employed by exchanges to win over liquidity from competitors. The net revenue earned by exchanges is the same as the taker is burdened with the higher cost of trading.
Actual volume and pricing limits trading strategies: maker rebates force passive investors to trade more aggressively in order to access liquidity as spreads are artificially narrowed.
Effectiveness of maker rebates come into question: the US Securities and Exchange Commission has questioned the economic theory and incentives of maker rebates and is piloting a program that could possibly end the model. This would mark a different future for exchanges and trading as investors who ‘take’ liquidity would be better protected from routing practices that forfeit ‘best execution’ price.
Ilgar Alekperov, CEO, ZUBR said in a statement: “Our data shows the fundamental issues with the maker-taker pricing model – which has been a standard practice both in the traditional and digital asset spaces for many years. As a new exchange, we understand more than most the need for liquidity to boost trading in the first weeks and months after launch.
“However, we are now acutely aware that rebates not only put traders at a disadvantage, but they force traders to be more aggressive and take on unnecessary cost and risk in order to chase liquidity across fragmented markets. The crypto world cannot fully mature until maker rebates are revised, and trading environments create equal opportunities for all market participants.”