Singapore-headquartered BitForex, the world’s largest crypto exchange by ‘reported’ trading volume, announced on Thursday (27 September 2018) that it was soon going to end its highly controversial policy of supporting trade mining (better known as “transaction fee mining”, “trans-fee mining”, or “transaction mining”).
The usual way that crypto exchanges make money is through transaction fees. When you buy a digital asset, you pay the exchange’s “taker’s fee” (typically, 0.5-0.75 percent), and the person selling the asset (thereby, providing liquidity) pays the exchange’s “maker’s fee” (usually, around 0.25 percent). These fees are usually collected in the form of ETH or BTC.
With transaction fee mining, the aforementioned business model is reversed in the sense that the exchange refunds 100% of the transaction fee back to the trader in the form of the exchange’s native token. This means that you can “mine” such platform tokens simply by trading those digital assets supported by a particular exchange’s trade mining policy. And some exchanges, in an attempt to be even more competitive against their rivals, offer refunds as large as 125% or 130% of the transaction fees.
The good thing about transaction fee mining is that it can bring more people into the crypto space, and therefore increase liquidity. The bad thing about transaction fee mining is that it can easily cause users to artificially inflate an exchange’s trading volume by engaging in “wash trading” (this act, which is illegal under U.S. law, happens when a trader, or a group of traders, buy and sell the same digital asset repeatedly).
BitForex started its trade mining program on 1 August 2018. On that day, BitForex said that it was going to release 40% of the total supply of its native BF token, i.e. four billion tokens, and distribute them to users engaged in trade mining.