To Ensure Quick Withdrawals: Binance and OKEx paid high Ethererum Fees on the Ethereum Blockchain Network
April 24, 2020 3:06 am
Data reveals that to ensure quick withdrawals for users, Binance and OKEx, the two major crypto exchanges Paid High Ethererum Fees.
Blockchain and crypto analytics firm Flipside Crypto data on March 13, shows that when the Bitcoin price fell to $3,600, Binance and OKEx spent large fees for Ethereum (ETH) withdrawals, a day named as “Black Thursday” in the cryptocurrency market.
The Bitcoin (BTC) price was dropped by around 50% in a single day, causing the price of Ethereum to fall to as low as $85 across major exchanges and in a short period of time, the entire market shifted downwards, as an unusual cascade of liquidations and withdrawal requests for exchanges also surged as investors started to express a high level of fear.
In the middle of all the panic, to smoothly process user withdrawals, Binance and OKEx paid higher than the average price of “gas” a term used to describe fees paid, on the Ethereum blockchain network to transfer data or payments.
High Fee for withdrawal Reduces Revenue
Per the Flipside Crypto chart, the amount of gas paid on the Ethereum network by Binance, Coinbase, OKEx, Kucoin, and Kraken shows that Binance and OKEx paid up to 400% higher fees to ensure withdrawal transactions.
“Binance and OKEx appear to be paying a constant rate significantly above the prevailing market price, as evidenced by the yellow and red parallel lines on the graph. This ensures that their transactions have the best chance of being included in the next block. When the price of gas spiked, around 8 AM UTC on March 12th, they both had to compute a new threshold for their transactions to go through.”-Dave Balter, Flipside Crypto CEO
Most exchanges have fixed fee rates for trading, deposits, and withdrawals. Since a significant spike in on-chain activities on major blockchain networks like Ethereum and Bitcoin unusually happens, exchanges typically keep a steady withdrawal cost over a prolonged period.
Withdrawal charges on exchanges also include a variety of operations on the exchange side such as costs associated with security, maintenance, and automated audits, apart from the blockchain network fees. To process a withdrawal, when a high fee is paid, it reduces the amount of revenue the exchange receives from it, to fund all other operations that are required to settle withdrawal requests.
Fee Adjustments by other exchanges
Per Will Price, Flipside Crypto data scientist, this may have caused some delay and led users to wait for a few blocks till their withdrawals were fully processed. Price stated:
“Coinbase and Kraken appear to be continuously monitoring the network and updating their gas prices accordingly, as seen in the blue and pink lines on our graph. If these predictions turn out to be inaccurate, then users may have to wait a few extra blocks for their transactions to be processed. These few extra seconds could make a big difference for users attempting to arbitrage prices across exchanges.”
Whether exchanges would have to pay high fees, after the launch of ETH 2.0 and the suspected change from the proof-of-work (PoW) to proof-of-stake (PoS) agreement algorithm remains to be seen. Corresponding the time, fees on the Ethereum network are anticipated to decrease considerably from current levels.
This indicates that exchanges may not have to cover the fees on behalf of their users when the next time the network will face blockage.