Old story. Exchanges get profits from users' withdrawal fees.

[ranochigo]

i'm not just talking about that transaction. what about their consolidation transactions---the ones which allow 74 withdrawal outputs to be sent from a single input? exchanges process lots of small deposits, more so than withdrawals, because customer deposits are free and withdrawals are not. at the very least, you should be including the fees paid in these transactions in your accounting of their "profit". arguably, the cost of their entire wallet infrastructure should be included as well.

That's a fair point. Gemini can afford to allow (10) free withdrawal per month though, but I guess it's not really an apples to apples comparison.

Binance consolidates their transaction in large denominations and users typically send the funds in large transactions. Take this transaction[1] for example, it has a transaction fee that boils down to roughly 0.00012BTC per deposit. Note that the network was fairly congested at that time. This means that, for the exchange to start losing money, each user has to do up to 3 deposits per withdrawal for it to be worthwhile.

I can't wrap my head around how most exchanges won't try to optimize their consolidation habits to reduce the transaction fees. For starters, allowing Segwit addresses would have resulted in a huge fees savings. Choosing a more optimal time for consolidation would result in better fees rate as well. Perhaps there might be some rationale related to their operations for this so I would hold my pitchforks for the consolidation part.

There really isn't a fair way to estimate the profit/loss an exchange makes when users deposit/withdraw. I think the point still stands, there are ways to lower the fees but the exchanges wouldn't really care because the fees are typically being passed down to their consumers.

[1] https://blockchair.com/bitcoin/transaction/3fc2176aba09fdaaebabfb39685ce1521dcda84bdb58ac8621decebf7e1105a5

Well, I bet some people are just sat stacking as well. Not making any crypto deposits and only making crypto withdrawals. The only way this can be fair is if they start lowering the withdrawal fees and start charging for deposits which IIRC was a practice for some exchanges previously.

[Pmalek]

The $$ value of fees is still different between coins, and less valuable coins generally come with smaller fees, so if your goal is to move coins from exchange to exchange, it can be smart to do so through some altcoin and immediately sell that, but you should calculate all the costs of this process - trading fee, withdrawal fee, market price difference.

I don't think you will be able to save that much on withdrawal fees this way. You will save money if you convert your bitcoin to doge or tron and withdraw those coins for a few cents for example. But if your goal is to convert that in the end to bitcoin, you have just postponed the withdrawal fees that you will now have to pay on exchange #2.

They used over-killing fee. Around the time of that transaction (5:26 AM UTC), fee at 50 sat/(v)byte (even 10 - 15 mins before that time-point) can help to get confirmation next 1 block but they used 100 sat/(v)byte.

They over-charge on miner fees because if they didn't, they would be overwhelmed with questions like where is my bitcoin? My bitcoin hasn't arrived in over an hour, etc.

[ranochigo]

They over-charge on miner fees because if they didn't, they would be overwhelmed with questions like where is my bitcoin? My bitcoin hasn't arrived in over an hour, etc.

Well, depends on how you look at it. For the amount of withdrawal fees paid, they should have a quick confirmation but it's true that not all of the fees paid are used to pay for the actual transaction fees. I guess it would be justifiable if a larger portion of their withdrawal fees are used for the actual transaction fee which is usually not the case.

Would be great if they could have variable fees for the user to choose and perhaps give them a notice about how the confirmation time would be longer etc etc. I'm sure most would choose to have a lower fees than have to overpay for it. I'm not sure how difficult it is to really implement that though.

[pooya87]

They over-charge on miner fees because if they didn't, they would be overwhelmed with questions like where is my bitcoin? My bitcoin hasn't arrived in over an hour, etc.

They just over-charge the user, they do not over-pay fees in the transactions. That's the point OP was trying to make. In other words the user pays a lot of bitcoin while the exchange only pays a very small portion of it in the actual transaction they send.
Besides implementing a simply dynamic fee estimator that sets the withdrawal fee also is not that hard.

[Pmalek]

They just over-charge the user, they do not over-pay fees in the transactions. That's the point OP was trying to make.

Exchanges do both. I understood the point OP was trying to make. If you look at the calculations tranthidung posted, (assuming they are correct), they overpaid the mining fee by 100% to make sure the transaction confirms as soon as possible. That's because many users start worrying if they don't see their coins (especially bitcoins) confirmed quickly.

Once again, I get the point that they are pocketing most of what they charge users for the withdrawals.

[stompix]

I don't think you will be able to save that much on withdrawal fees this way. You will save money if you convert your bitcoin to doge or tron and withdraw those coins for a few cents for example. But if your goal is to convert that in the end to bitcoin, you have just postponed the withdrawal fees that you will now have to pay on exchange #2.

He said it also, it's from when you want to hop from one exchange to another with the minimal cost, it doesn't work to get those  BTC in your wallet, but if you want to liquidate some shitcoin and your favorite exchange do get fiat from isn't supporting it, doge and other second-tier coins are a way to save a few dollars. Just looking at the fees, the withdrawal fee is the same 0.0005 for BTC but 0.005 for ETH, 3 times cheaper, for Doge is just 50, that's 0.50$, you've saved 15$, might not be much for some but for others every $ matter.

Anyhow, the way things are going exchanges should start looking at those fees and just them accordingly pretty soon. 5-10 $ is one thing but if the price of one BTC will hit 100 000, you can't charge a guy 50$ just because of that, it will become prohibitive for anyone dealing with small sums.

They just over-charge the user, they do not over-pay fees in the transactions.

They also over-pay like morons, when you see the mempool at 1-5sat/b and suddenly there is a yellow line at 100sat/b that's Binance making other wallets estimators go nuts because of that.
January the first, mempool empty but here they come with a splash, and that block had 1/3 of it made from 1-2 sat/b transactions.

[LoyceV]

Binance consolidates their transaction in large denominations and users typically send the funds in large transactions. Take this transaction[1] for example, it has a transaction fee that boils down to roughly 0.00012BTC per deposit. Note that the network was fairly congested at that time. This means that, for the exchange to start losing money, each user has to do up to 3 deposits per withdrawal for it to be worthwhile.

Some exchanges charge a fee for low deposits. BitPay charges per transaction too, and when I followed my payment it was consolidated in a huge transaction with around $2000 fee.
But most large exchanges don't charge for deposits, probably because that would reduce the number of people who deposit to them. Once you have deposited, you have no choice, but it would be much more transparent to charge a larger fee per deposit than per withdrawal. After all, consolidating inputs is more expensive than adding more outputs.

for Doge is just 50, that's 0.50$

Doge barely has fees, so this is 98% profit for the exchange. I've seen withdrawal fees for XLM as low as 0.0001 (or even more zeros?), I don't get why they only want to make a profit on certain fees.

[RapTarX]

It's not true for all the exchanges. For instance, ftx.com doesn't charge any fee on withdrawal in most of the cases unless total withdrawal amount is bigger than the users trading volume; in that case, 0.10% fee is charged while that seems pretty good for low amount of transaction. Reference
How much trades per day take place on Binance? I have no idea; they charge fees from both buyer and seller and I think it's far bigger than the withdrawal fees as most of the traders barely withdraw their crypto from the exchanges unless they are in need.

[figmentofmyass]

I can't wrap my head around how most exchanges won't try to optimize their consolidation habits to reduce the transaction fees. For starters, allowing Segwit addresses would have resulted in a huge fees savings. Choosing a more optimal time for consolidation would result in better fees rate as well. Perhaps there might be some rationale related to their operations for this so I would hold my pitchforks for the consolidation part.

i reckon that minimizing the amounts held in the hot wallet at any given time is a higher priority than minimizing fees, right? after all, they can just pass the fees onto the user.

that may explain why they don't time consolidations optimally. they might do it totally on demand, on an as needed basis, same as they do with withdrawals.

There really isn't a fair way to estimate the profit/loss an exchange makes when users deposit/withdraw. I think the point still stands, there are ways to lower the fees but the exchanges wouldn't really care because the fees are typically being passed down to their consumers.

+1. that's why many exchanges have been so slow to implement batching and segwit.

[tranthidung]

They used over-killing fee. Around the time of that transaction (5:26 AM UTC), fee at 50 sat/(v)byte (even 10 - 15 mins before that time-point) can help to get confirmation next 1 block but they used 100 sat/(v)byte.

They over-charge on miner fees because if they didn't, they would be overwhelmed with questions like where is my bitcoin? My bitcoin hasn't arrived in over an hour, etc.

I knew and as I said, they want 1-attempt action and finish it (Replace-by-Fee is marked as No). Hence, the 100% higher transaction fee is acceptable if taking the core approach of exchange: Don't want to waste resources and replace transactions to save fees.

The rest more than 90% of withdrawal fee after a deduction for transaction fee goes to their service operation, maintenance, technical things. It is fact and a thing to accept before people start to use exchanges. Fair or not fair for both sides (exchanges or customers), I don't bring it here. My message for this thread readers is beware of this fact and try to use non-custodial wallets if they are not trading.

I know there are alternatives to withdraw funds (in altcoins): Dogecoin, Litecoin, XRP, TRON, etc. Some alternatives charge withdrawal fees but almost zero in USDT value. It is not the main purpose of this thread but as someone are discussing about it, I admitted I used alts for my withdrawals if possible but for every batch, it is not a huge fund. If I move a huge fund, I use bitcoin.

It's not true for all the exchanges. For instance, ftx.com doesn't charge any fee on withdrawal in most of the cases unless total withdrawal amount is bigger than the users trading volume

You are correct. I know some crypto gambling sites waive the fee but not sure about exchanges. All and most are different in meanings and I should use most (corrected it already). I used ftx, not much and did not make withdrawal with BTC so I did not notice it. Thanks.

for Doge is just 50, that's 0.50$

Doge barely has fees, so this is 98% profit for the exchange. I've seen withdrawal fees for XLM as low as 0.0001 (or even more zeros?), I don't get why they only want to make a profit on certain fees.

All cryptocurrencies (or most ? -- if I missed something) charge fees for their transactions. Fortunately, the transaction costs are different and partially depends on value of each cryptocurrency. A transaction fee with one Dogecoin is different than with 1 XRP, and very different than 0.01 ETH, ie.

Your discussions remind me about one fact in my nation:

• Schools charge fee for infrastructure maintenance. Personally, I think it sucks and they can publicly charge all in tuition fee. Charging additional fee and call it as infrastructure maintenance fee is sucked and somewhat corrupted or faulty analogy.
• Imagine: Do I have to pay for infrastructure fee when I go to a hotel and take one room?
• I don't know whether the infrastructure fee is charge at schools in Western/ developed nations?

[pooya87]

They also over-pay like morons, when you see the mempool at 1-5sat/b and suddenly there is a yellow line at 100sat/b that's Binance making other wallets estimators go nuts because of that.
January the first, mempool empty but here they come with a splash, and that block had 1/3 of it made from 1-2 sat/b transactions.

That's true, but they usually don't over-pay as much as they charge the user though

Doge barely has fees, so this is 98% profit for the exchange. I've seen withdrawal fees for XLM as low as 0.0001 (or even more zeros?), I don't get why they only want to make a profit on certain fees.

Because having lower withdrawal fee creates incentive for traders who want to transfer funds between exchanges to use that altcoin which in turn will give the exchange some extra money (the trading fee to exchange their bitcoin to that altcoin). Additionally there aren't that many altcoin withdrawals from exchanges so the revenue won't be that good.

+1. that's why many exchanges have been so slow to implement batching and segwit.

The reason in my opinion is laziness and maliciousness otherwise when they charge the same amount of fee but batch the transaction they end up paying even less fee which translates into more profit.