Transaction or “trade mining” is the latest form of rewards that exchanges have been furnishing on their customers – a form of rebate where a customer earns (mines) the native token of the exchange purely by placing trades. Brave New Coin has dropped exchanges involved in this potentially volume manipulative practice from the exchange-weighted pricing of major pairs, including BTC/USDT, ETH/USDT, EOS/USDT, BCH/USDT. The exchanges are all relatively minor players in the industry, FCoin, CoinBene, CoinEx and BigOne.
Incentive or manipulative?
Native exchange tokens are nothing new, Kucoin, Coss, Cryptopia all use a form though the most prominent exponent is Binance’s BNB coin which entitles traders to discounts on their transaction fees if used as a form of payment for the fees.
Incentives for the exchanges and traders in those examples is quite clear, an appreciating native token diminishes customers’ costs and provides a liquidity buffer to the market, but so-called trade-mining coins have been accused as a form of wash trading to entice customers to the exchange through the lure of a freebie that artificially inflates the exchange’s volume as there’s no inherent use for the token.
The obscure Singapore-based exchange FCoin claims to have pioneered the practice which has been adopted by other industry minnows such as Coinbene, BigOne and CoinEx, and all have seen a huge ramp-up in trading volume. Shortly after BigOne announced the “trade-mining” rebate offer of its ONE token (seemingly created purely for that purpose) BigOne became the biggest exchange by volume for BTC/USDT, comprising 30% of that market and 20% of the entire BTC market.
This month its BTC/USDT 24-hour volume peaked at an absurd 250,000. A month ago, before they offered “fee reimbursements”, its daily volume was 4 BTC/USDT.
The unnaturally sharp ramp-ups and down in volume can be seen by the chart which is atypical of human trading activity as it perfectly pre-empts the exchange’s announcement of the suspension and resumption of the “trade-mining” offer, which was limited to 5 major trading pairs: BTC/USDT, ETH/USDT, EOS/USDT, BCH/USDT, ONE/USDT.
FCoin was lambasted for the questionable business practice in what amounts essentially to wash trading. The exchange also managed to clog up the Ethereum (available on Coinbase) network by asking users to vote for the addition of a new coin – similar to Binance’s coin of the month vote – but instead of conducting the vote on internal servers it was spammed across the entire Ethereum (available on Coinbase) network, slowing transaction times and raising the Gas fees for ERC20 tokens across all exchanges.
The average transaction fee jumped from 20c to around $5 and Vitalik Buterin gave an ironic display of his feelings on Twitter.
Jumping on the bandwagon
Wash trading is a real concern in crypto markets and these sort of trade rebate offers alerted traders to the suspicious order book activity on Fcoin relating to the Fcoin – USD TETHer pair (FTUSDT). Rampant levels of botting was noticed by traders in the rapid churn of orders opening and closing on the exchange and it has even been compared to a Ponzi scheme as most of the coins promise a form of dividend payment to the holder. FCoin stands out in this regard, promising to redistribute 80% of revenue back to FT holders while just 20% is kept for platform development and operation costs.
This concern over price manipulation didn’t prevent other exchanges from issuing their own trade-mined coins. Another Singapore-based exchange Coinbene went one louder than FCoin offering users a rebate of 130% on their trades with the equivalent CONI coin in return, imploring customers to get in on the act: “The sooner the better, the activity will end automatically while (sic) Coni runs out.”
Another Asian exchange CoinEx announced a similar offer:
Network marketing
WhETHer a Ponzi scheme or PR ploy, trans-mined coins are distributed in a style not dissimilar to the network marketing model (formerly known as pyramid marketing) used by many health supplement companies, where the early coin holders could benefit from the cumulative business of new customers through the redistribution of revenue.
Airdrops are the traditional mechanism for network distribution that can succeed an ICO to build brand loyalty or sometimes, as in the case of these trans-mined coins, bypass the ICO process altogETHer to spread the token faster and wider.
There are two ways in which tokens are airdropped. One is where they are dropped in the wallets of holders of a certain coin, usually one of the majors, without the recipient having to do anything, and second is pre-announced where the recipient might be required to complete certain tasks or sign up for the airdrop – otherwise known as a bounty. Airdrops can also result from a hard-fork, the most famous was when Bitcoin (available on Coinbase) Cash was delivered to holders of Bitcoin (available on Coinbase). EOS has had over 10 airdrops since its ICO.
Exchanges have the option of whETHer or not to accept airdrops for the customers’ coins they hold in their wallet and they usually do support them. While there are always projects to look out for, sites like airdropaddict and airdropalert.com are useful to track interesting airdrop opportunities.