Towards Zero-Fee Crypto Trading

Studying the conditions of established cryptocurrency exchanges can be quite disenchanting for traders who are used to the advantages of dark pools in equity markets. Wootrade, a relatively new trading platform currently in testing phase, promises to mix up the scene. Unlike most exchanges, it claims to offer zero-trading fees and deep liquidity for popular assets such as BTC, ETH or LINK.

Wootrade has been incubated by Kronos Research, a Taiwan-based quantitative trading firm known as one of the larger players in the industry and acting as a top market maker on FTX. Since 2019, Wootrade has received funding from major VCs such as Fenbushi Capital or Three Arrows Capital just to mention two examples. While Wootrade is seeded with liquidity from its parent company, it aims to create an independent ecosystem which is open to various flow providers such as OTC desks or third-party exchanges.

In this post, we’ll review selected key aspects that are relevant from the perspective of advanced or algorithmic traders. For more information on Wootrade’s history, goals, and plans, the reader is referred to the Wootrade Litepaper.

Fees

Most cryptocurrency exchanges charge a certain percentage of each trade as fee. Typically, one distinguishes between maker fees and taker fees depending on whether an order adds or removes liquidity, respectively. Let’s have a look at the fee structure of some of the largest exchanges, starting with the spot market (the first value represents the maker fee and the second one the taker fee):

While these percentages are acceptable for most occasional traders, they easily pile up for frequent trades. For example, executing one order per week results in total costs between 5% and 25% per year. The situation gets even worse for short-term trading strategies such as scalping. Consider a strategy that leverages price fluctuations in the order of 1%. As fees are charged twice for a buy and a successive sell order, the total costs range between 20% and 100%!

For derivatives, the fees are usually lower, where a negative value denotes a rebate aiming to attract liquidity by market makers:

Yet, taker fees may consume a significant portion of potential gains.

In contrast, Wootrade doesn’t charge any fees, at least when used interactively via the web-based user interface. To be eligible for zero-fee trading, users have to stake a certain amount of WOO tokens. The minimum requirement in the beta program is 240 tokens, which is roughly $175 at the current price of $0.73 per token (as of April 8, 2021). It should be emphasized that the details of the staking program may change with the official launch of Wootrade.

The situation appears to be slightly different for API users: According to the API documentation, Wootrade charges a taker fee of 0.01% (but no maker fee). Note that the taker fee, while not being zero, is roughly an order of magnitude smaller compared to classical exchanges, and hence, still a unique selling point for Wootrade.

Exchanges with zero or near-zero fees are not new in the equity markets, even for retail customers. IEX, for example, offers competitive pricing models with much lower trading fees than cryptocurrency exchanges. Wootrade closes this gap many traders have been struggling with. However, it remains the question: Is this economically feasible at all? In a recent blog post, Wootrade discusses how to generate revenue without trading fees and how to avoid misuse such as front-running. The latter may be a consequence from revenue models such as Payment for Order Flow (PFOF), which has fallen into disrepute by the GameStop short squeeze.

Spread

Now let’s have a look at the spread. Unlike fees, the spread is not constant and defined as the (fluctuating) difference between the lowest ask price and the highest bid price. Simply speaking, a tight spread is advantageous because it allows traders to buy and sell assets at roughly the same price. Suppose, for example, the highest bid price for BTC is 50,000 USDT and the lowest ask price is 50,050 USDT. For such a spread, one would lose 0.1% in addition to trading fees if one would buy BTC and sell it shortly after. Large spreads are often a result from insufficient liquidity, or they are leveraged by the trading platforms to compensate for commission-free trading.

To assess the average spread on Wootrade, we compared the top-most order book entries for BTC/USDT using Wootrade’s public WebSocket API (best bid/offer stream) for 1,000 successive data points. While the numbers may not be representative and change in the future, they give a good indication of typical spreads. The following histogram shows the results, where the x-axis represents the spread with bins of 0.1 USDT:

Compared to other platforms with similar volume, Wootrade offers exceptionally tight spreads — at most 0.1 USDT in by far most cases, which corresponds to less than 0.0002% at a BTC price of 50,000 USDT. There are only few outliers, mostly in the range up to 10 USDT, which may occur when large market orders hit the order book, thus consuming series of limit orders. However, such large spreads are typically temporary in nature and vanish with the next point in time when new limit orders kick in.

Liquidity

At the time of writing (beginning of April 2021), Wootrade handled a daily volume of approximately $100,000,000 (the current volume is shown on the Wootrade website). While this is still not at the level of established exchanges, the volume has seen a steep increase and more than doubled since mid-March. Further growth can be expected at the latest with the official launch announced for June 2021. Note that the success of DeFi has had considerable impact on Wootrade’s strategy. According to a recent blog post, first steps have been taken to bridge DeFi and CeFi using pools that connect on-chain liquidity with robust pricing data.

Web Interface and API

With Woo X, Wootrade provides a sophisticated and customizable web interface that leaves hardly anything to be desired for manual trading. The following screen shot shows the web interface in basic mode, which includes charting tools, the order book, a watchlist, own portfolio and orders, as well as recent trades. The advanced mode allows users to display multiple assets simultaneously on the same screen. Potential users who don’t have access to the beta program (like the author) may have a look at the live demos or consult the support center.

Traders interested in implementing own automated strategies, may build on the Wootrade API. It consists of a number of REST interfaces for request-response style communication with the trading engine and WebSocket streams for real-time data feeds. Some of the interfaces are public and may be used even without API key and secret.

The RESTful API covers the following functionalities:

  • Exchange information, available symbols / tokens, market trades
  • Send, cancel, get orders
  • Orderbook snapshot (current asks/bids)
  • Transaction details and trade history
  • Account information, settings, and holdings
  • Settlement history and requests
  • Token deposit / withdrawal
  • Asset history and transfers
  • Interest history and repayment

Unfortunately, there are currently no ready-to-use language bindings, e.g., for Python or Go, for which reason developers have to deal directly with REST calls.

The WebSocket API supports the following (non-trivial) event types:

  • Order book updates
  • Trade events
  • Order events
  • Transaction details
  • Position information

Additionally, there are two public streams with latest tickers and best bids/offers for all symbols.

To sum up, Wootrade’s vision is to connect various stakeholders such as centralized and decentralized exchanges, institutional traders, and OTC desks for optimal liquidity. The combination of zero fee trading with tight spreads is pretty unique for cryptocurrencies and has the potential to push the industry closer to what is known from equity markets. There are many more things to discuss about Wootrade such as the WOO token or the staking program, which could only be addressed very briefly as part of this post. Further information can be found on the official channels:

The author is neither affiliated with nor invested in Wootrade and assumes no responsibility or liability for any errors or omissions in the content of this site.

Update April 8, 2021: Added information about staking program, revenue model, and web interface.

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