In Crypto, Fees are High and Speeds are Slow

A simple, but typical, exchange fee model

A typical fee at a crypto centralized exchange (CEX ^{[3] In crypto, CEX stands for centralized exchange, as opposed to an “on-chain” trading platform referred to as DEX or decentralized exchange.} ) is about 0.1% (equivalent to 10 basis points or bps). Roughly speaking, if you buy (or sell) 1 ETH for $3000, you pay $3 to the exchange for their service. The fee calculation is based on the amount of money traded, normally in a reference stablecoin, e.g., USDC or USDT.

For decentralized exchanges (DEX), fees can vary greatly, but they are generally on par with, or higher than, the CEX fees.

Asymmetrical fees based on “making” and “taking” liquidity

The simple model above is not how sophisticated trading firms view the fee structure—and indeed, the exchanges offer some nuance to entice the pros. Traders think of their orders as either “making” or “taking” liquidity ^{[4] Orders that take liquidity are filled right away by matching with orders already in the book. In contrast, “making” orders typically rest on the book for a longer period, providing liquidity for future trades.} , and if you are an individual placing a trade, then it is likely that your counterparty is a pro and that they will receive a lower fee or rebate because their order was categorized as “making.”

Let's be blunt: this asymmetry in exchange fees is useful to the exchange and to the professional traders, but not to you.

At PAX, Get Paid to Trade

PAX takes a different approach. PAX does not charge a fee to trade ^{[5] PAX charges high-frequency market makers for access to its platform. Their fees offset the cost to normal market participants.} . Instead, PAX pays a rebate to all normal orders, including those that “take” liquidity. The PAX rebate ranges from 0.15 to 0.25 basis points (bps) depending on the API combination used. Importantly, PAX's rebates are available to all participants on all their orders—this is much better treatment compared to typical exchanges that offer lower costs and rebates exclusively to large trading firms using “market-making” order types.

Comparing exchange fees to market spreads

Let's take a closer look at Binance, one of the largest crypto exchanges.

On Binance, the standard fee for spot trading is 0.1% (10 basis points or bps) for both makers and takers. If you're a high-volume trader, you might qualify for lower fees, but you'd need to trade billions of dollars monthly to reach their most favorable fee tier where Binance becomes a maker/taker venue with 2.3 bps for taking and a rebate of 0.8 bps for making ^{[6] VIP tier 9 for spot & margin trading and liquidity program (LP) tier 4 for spot maker. See Binance trading fee schedule for details.} . This means the best rebates are reserved for the pros, while regular traders continue to pay higher fees.

Now, let's compare these fees to the actual market spreads. For the BTC-USDT pair on Binance, the typical spread at the top of the book is about 0.015 bps ^{[7] Analysis done over a three-day period using the Binance trading API.} . Even when trading a notional amount of $1,000, the average spread doesn't deviate much from this value. Exchange fees are significantly higher than the natural market spreads.

In other words, the main cost of trading for the BTC-USDT pair on Binance isn't the market itself—it's the exchange fees.

“PAX Optimistic Rebate” – A completely new market fee structure

Nowhere in the world—across all asset classes including traditional equity markets—do we find a market providing rebates like PAX does. We refer to our new fee & rebate structure as “optimistic rebate.”

Optimistic rebate serves important needs for all trading counterparties at PAX. It rewards trading participants who are ultimately the long term holders of the underlying traded asset. The PAX λ API enables market makers and algorithmic trading participants to react to market events as they occur, i.e., with no latency. The capability to cancel out and reprice quotes reduces exposure risk – the risk of adverse selection – for market makers. The difference between λ fees and PAX rebates is the fundamental unit of reward to the PAX venue itself.

PAX rebates are given to both marketable (“taking”) and limit (“making”) orders, placed using our industry standard websockets (WSS) API, while PAX fees are charged to orders placed through the λ API.

Maker/taker and inverted markets

In more mature capital markets, there are often two exchange venue types: “maker/taker” venues and “inverted” venues. Most exchange operators, including NYSE and NASDAQ, operate a maker/taker venue. These exchanges charge a fee for orders that take liquidity (e.g., $0.0030 <sup>[8] Representative of the most expensive fee, not the fee offered to their largest customers.

Assuming a share price of $250, $0.0030/share traded is 0.12 bps or 20x lower than the most favorable crypto exchange fee.</sup> per share traded) and provide a rebate for orders that add liquidity (e.g., $0.0020 paid per share traded). In this model, NYSE pockets $0.0010 per share traded (the difference between the fee and rebate).

NYSE (and other exchange operators such as NASDAQ and Cboe) also operate so-called inverted venues where the fee is charged to orders that provide liquidity and the rebate is awarded to orders that take liquidity. The inverted fee structure represents a small (less than 5%) share of daily volume in U.S. equities.

Crypto exchanges often mirror fee structures in traditional finance but are still progressing along this asymptote toward varied, optimized fee models. Relative to these mature markets where the exchange fees are always less than the tightest possible bid/ask spread, crypto markets have high fees and have a long way to go.

Wash trading and reversion to maker/taker

PAX refers to its fee structure as “optimistic rebate” because under a certain rare set of circumstances, PAX reverts its fee structure to standard “maker/taker” to prevent wash trading. When reverted to maker/taker, the marketable (taking) orders pay a fee of 0.26 bps (0.1 bps on top of the rebate paid to their counterparty).

But the circumstances under which this occurs are indeed rare. For optimistic rebate to revert to maker/taker, it requires that no market maker remain quoting a certain price while other participants incidentally have limit orders at that same price. This describes a scenario high frequency traders know well: a mispriced quote. Because HFTs use the λ API, it is highly likely that any remaining mispriced liquidity is taken by them before any other marketable orders experience reversion to maker/taker.

For participants that require their marketable order be paid a rebate, PAX offers its “rebate-or-cancel” (ROC) order attribute.

PAX fee structure summary

The fee structure at PAX is based on the combination of APIs used by the maker and taker. As in most crypto exchanges, the standard entrypoint is Websocket Secure (WSS).

Understanding the PAX fee structure

WSS x λ: Marketable orders entered using WSS receive a rebate because they cross with orders placed using the λ API. The λ API is used by market makers to place quotes immediately when a price level is open and pay a fee for getting to the front of the queue and for having access to the λ API to cancel to avoid bad fills.

λ x WSS: Market participants using the WSS API place limit orders to avoid crossing the spread. Their limit orders are naturally paired with HFT market taking strategies that use the λ API to respond to relevant market signals. This scenario is short lived because HFT market takers, when responding to such triggers, tend to take out price levels in their entirety.

λ x λ: This scenario is unlikely because of the natural time-priority sorting that causes WSS orders to meet with λ orders.

WSS x WSS: This scenario is unlikely because of the natural time-priority sorting that causes WSS orders to meet with λ orders. Here, the maker receives a rebate, and the taker pays a fee to prevents wash trading.