Exchange

itBit is trying to lure traders with rebates, and it’s already helping pump up its ether volumes

Quick Take

  • Paxos’s itBit offers rebates for ether traders adding liquidity to its venue
  • It’s helped boost its volumes, the firm said
  • Bitcoin rebates could soon be on the way

Paxos’ itBit, the tiny New York-based crypto exchange, is hoping incentives for traders will continue to drum up new business on its market, the company revealed to The Block in an exclusive interview. 

Earlier this year the firm began supporting trading for Ethereum, the second largest cryptocurrency. In order to attract new business, the firm has started to offer so-called rebates to folks adding liquidity to the platform. “We were low single-digit market share and the customer feedback we were getting had to do with pricing,” David Wells, general manager of the exchange, told The Block.

Rebates play a key role in the so-called maker-taker stock trading model, which dominates U.S. equities. With maker-taker, exchanges offer rebates to traders and brokers who add liquidity to their venues, whilst charging traders who take liquidity. It’s a controversial system that is set to be reviewed by the Securities and Exchange Commission’s transaction fee pilot, which will examine the impact of rebates on the market.

In crypto, most exchanges have a maker-taker fee schedule. In most cases, however, exchanges don’t offer rebates to market makers. Typically, they simply don’t charge makers. Fees for takers, on the other hand, can be astronomically high when compared to equities. For instance, Gemini charges its clients as much as 100 basis points to conduct a trade on its market, versus itBit’s ceiling of 25 basis points for certain trades. Seed CX, a tiny Chicago exchange operator, charges as much as eight basis points. 

As for itBit, Wells says the rebates have been popular and have helped the firm grow its market share in ethereum trading to nearly 10 percent. 

As noted recently by The Block, exchanges are under pressure to lower costs for their clients as new blood enters the market, including the likes of ErisX and Bakkt. “Compression will come from supply and demand. I fully expect crypto to trend toward Equity and FX commission models in the next decade,” David Mercer, CEO of LMAX Digital, told The Block. LMAX charges as little as two basis points to conduct a trade. 

As for itBit, the firm has also introduced a new order type to help its clients lower costs. A post-only order provides a guarantee that a given trade will be executed only if it adds liquidity.

“Retail & institutional traders alike both get excited about this combo of having post-only and rebates,” Paxos noted. “Algorithmic traders especially love this because they can try posting different orders all the time and not worry about inadvertently executing as a taker.”

A number of the firm’s rivals already support this functionality, including Bitfinex. Compared to many of its rivals, itBit has far fewer order types to pick from. As for the firm’s next steps, the exchange might add rebates to its other markets at some point. 

“We are definitely doing the analysis,” Wells said. “Concept of the maker rebate seems to be popular across retail and institutional.”