[bisq-network/proposals] Lower Trading Fee (#126)

ifarnung notifications at github.com
Wed Oct 9 11:11:09 UTC 2019


> _This is a Bisq Network proposal. Please familiarize yourself with the [submission and review process](https://docs.bisq.network/proposals.html)._

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**Proprosal to Lower Trading Fee**

On June 26th, in Proposal #99, Deltahandler proprosed to raise the trading fee as not enough BSQ tokens were being burned.  They were basing the new fee structure on a hopeful estimate of 20 million USD trading volume per month.  This would have generated a minimum of 80,000$ in fee revenue.  (https://github.com/bisq-network/proposals/issues/99)

The fee in BTC terms was raised from .004 BTC (.001 + .003) for maker+taker to .008 (.002 + .006) BTC for maker+taker.  A rise of 100% and at .6% for the taker plus mining fees, it looks to be a material cost.  On an order of 2.0 Bitcoins, 16 million sats are being taken in fees not including mining fees (at this large trade size, the mining fees become trivial, just as at small trade sizes [.01BTC] the trade fee is much smaller than the mining fees typically).

The fee in BSQ terms was raised from a round trip of 6.4 BSQ (1.6 maker + 4.8 taker BSQ) to 51 BSQ (13 maker + 38 taker BSQ) which is an astounding 800% raise in fees.  It's pretty clear that the BSQ fee was too low at .066%, but also seems clear to me and other traders that it's too high at .51%.

So it shouldn't surprise us that these much higher fees are working to discourage efficient trading on BISQ at the higher volume level.  
This, in my opinion, is mostly negatively affecting the Monero trade but that a big part of the BISQ volume.  Maybe it was too cheap before and it's too expensive now, it would be nice to find a happy balance!  Other users share my negative opinion of the increased trading fee, and I suggest reading what 'invertedbob' wrote in a thread called 'Fees skyrocketed?' 
 (https://bisq.community/t/fees-skyrocketed/8085/29)

Unfortunately, the trading volume trend has been down the last few months, I have personally noticed a severe decline in the Monero market in September.  The bulk of the trade (multiple 2.0 BTC trades) seems to have moved somewhere else, as the customers likely still have a need to convert XLM and BTC.

I think we can attract liquidity and trading by lowering the trading fee.

My background is in stock options market making at the Chicago Board Options Exchange where I worked for 10 years (2000-2010) before retiring due to a combination of being made obsolete by algorithmic trading and stacking enough sats to be free of the modern variety of (corporate) slavery.

So who cares so much about these fees?  Meapistol wrote in Proposal #99 _"The BTC price can easily change 20% in a day and changes far more than the fee within the trading window. Fees are of no importance to traders, in particular in comparison with the friction that Bisq has."_

While I can understand the sentiment, I couldn't disagree more.  The volatility of the BTC price is random (let's assume for simplicity) but the fee is very much a tax that always gets collected.  [Example: When your Citibank ATM charges you a 3% foreign transaction fee, you can never get a good exchange rate with them.]  It's especially important for the market makers as they must charge it back from their customers anyway!

Why do we need market makers anyway? I thought this was peer to peer?  Can't we cut out the middleman?  While it would be nice, take a look at Ebay, it's overwhelmingly professional sellers catering to regular customers.  The BISQ customer (Taker) wants to fire up BISQ, see what the best offer is, and make their trade.  It's nice when they happen to meet another person just like them with the exact opposite desire and the exact same amount, but it's somewhat rare.  Great recent example, there are no offers in the BRL order book, everyone wants to buy! 

This is where the market makers come in.  Their BISQ is on 24/7, they have created a bunch of offers that customers might be interested in taking, and there are just as happy buying or selling as their goal is a kind of two way trade or maybe a one-way circular trade involving another exchange.  For example, one could Sell BTC on BISQ, getting cash to a bank account, and then restocking their BTC BISQ account with purchases on a regulated exchange with a bank wire.

Market makers like me are on BISQ to trade to make a profit, using their bankroll and willingness to buy or sell at a premium to the spot price to stack more sats. Their function is provide liquidity when the customer wants it.  For example, I just got an email from a frequent trade partner that they want to buy another .125 BTC, so I will fund my wallet, set up the offer, and charge him X% for the trouble.  The hope is that there are many market makers like me competing with each other driving the fees charged by us middlemen down as close to the cost as anyone is willing.

So to make a profit, the market maker needs to charge the taker for the fees s/he is paying, as well as the fees that another exchange is charging (for example to go buy the Monero you need to send), as well as mining fees and finally his/her profit.  There's additional risk in the volatility of the assets but like I said before, that is more or less random and over the long run washes out to even.  But the fees never stop adding up, and those are charged directly to the customer.  Another material cost is the lost BSQ fees when you cancel an order to free up your 'Reserved Bitcoin'.  Let's say you make an offer for 2.0 BTC, pay your fees in BSQ (76$), and you never make a trade on that offer.  When you cancel, your BSQs are gone.

This is why you see the market about 3% wide in the XMR order book.  I've been quoting it narrower than anyone in there for at least a few weeks and really am not seeing many trades.

If a customer has to pay 1.4% over spot for XMR plus another .6% in trading fees, it's no wonder that they would look for a cheaper substitution.  With lower fees, the market makers are able to tighten their spreads.  So I would expect the offers to be more like 1% over spot, and hopefully even narrower.

**Conclusion:**

Reduce the fees as a way to reduce the market spread so that customers feel better about trading on BISQ.  If we cut the fees in half, and that causes the volume to more than double, then it's a win-win situation as BISQ collects more fees, and customers pay less.

**Final Proprosal:

Lower Trading Fees
Maker: .01%  Taker .03%  paid in BTC
Maker: 5 BSQ per BTC  Taker: 15 BSQ per BTC**


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