Cryptocurrency Exchange Fees Explained: What Happens During a Crypto Swap?
In each cryptocurrency exchange, there are specific fees that a trader needs to pay to validate the trade. It’s unfortunate, but that’s the way blockchain interactions work.
We simply call these fees network or mining fees. To make the process as easy as possible for our customers, we will explain what expenses are embodied in a typical crypto swap.
How Do Swaps Work?
The process of exchanging cryptocurrencies is a complex one. It involves moving coins between different providers and paying several fees and commissions for such transactions. The users are not aware of this because everything is being handled in the background. Let’s talk about those hidden processes and explain how an instant crypto swap works.
When you initiate a trade on a crypto swap platform, it automatically looks for the best market exchange rates to offer you the greatest value for your money. Swapping cryptocurrencies requires several steps. During each stage, a small fee is charged.
These are the fees that you need to be aware of when exchanging digital assets through a crypto swap platform:
- The network fees when sending funds to the site’s deposit address. This includes the mining fees to incorporate your transaction in a block or the withdrawal fees if you send coins from a 3rd-party exchange.
- The network fees that liquidity providers charge for transferring coins to them.
- The crypto trading fees liquidity providers charge to swap one asset for another one.
- The network fees that are required to send the assets back to you from the 3rd-party service providers.
Every deposit to a crypto swap platform includes a mandatory transaction fee that the sender must pay. This is a blockchain safety mechanism implemented to prevent fraudulent individuals from spamming the network.
If we are talking about Bitcoin transactions, the fee depends on the current blockchain congestion, the type of addresses for sending and receiving coins, and the number of inputs and outputs.
When there is a lot of traffic, miners will prioritize the transactions that pay higher network fees. Those paying less are pushed back and required to wait their time. To prevent this from happening to you, ensure that your depositing transaction includes a high enough miner fee. For more information on how a cryptocurrency transaction gets confirmed, please have a look at this detailed article.
An excellent way to save some money is to use Native Segwit addresses (Bech-32) when sending and receiving Bitcoin. They will allow you to save up to 60% in mining fees. However, the number of inputs and outputs significantly affects the total blockchain fees. A higher number of inputs/outputs results in a bigger size and weight of the transaction. Preferably, your depositing transaction should have only one input and one output to and from Native Segwit addresses.
3rd-Party Network Fees
Crypto swap platforms have partnerships with various liquidity providers that help in the exchange process. Let’s take any two popular cryptocurrencies, for example, Cardano and Polkadot. You will quickly notice that there isn’t a trading pair on traditional exchanges that will allow you to swap Cardano for Polkadot directly. What you have to do instead is exchange Cardano for a stablecoin or a more popular currency like ETH or BTC, for example, and then use one of those assets and trade it for Polkadot.
That process involves different blockchain interactions and multiple trading and network fees. It takes a long time and costs plenty of money. Moreover, you can’t know what effect the volatility of cryptocurrencies will have on the prices in the meantime.
When a user deposits a coin to a swap platform, the asset is transferred to a unique generated address. This way the exchange knows which specific user sent them these specific funds, as the blockchain is private. To swap the funds, the platform transfers them to the liquidity provider. This operation happens on-chain and requires a deposit network fee. When the swap is completed, the funds go from the liquidity provider to the user. It also happens on-chain and requires a withdrawal network fee.
This is where instant crypto swap services come into play. They will tackle this problem effortlessly, perform each trade in the background, charge you the total fee, and deliver only the final product — the currency you wanted. Swap platforms offer you a quick and easy way to exchange any two assets you want. You only pay the fees once, and you don’t have to search various exchanges looking for the trading pairs you need.
3rd-Party Crypto Trading Fees
Each trade on cryptocurrency exchanges requires the trader to pay a fee whenever a coin is purchased or sold. This fee is known as the trading fee. The commission amounts depend on several factors:
- How big the transaction is.
- How frequently you trade.
- If you are creating maker or taker orders.
Cryptocurrency exchanges incentivize traders to trade frequently and in large quantities. Therefore, if you use their services a lot, they will offer you more cost-efficient fees. The opposite happens when you trade in smaller amounts and infrequently. Thus, percentage-wise, you will pay less for a $50.000 exchange than for a $50 one.
Depending on the type of buy or sell order you create on an exchange, you will be asked to pay either a “maker” or “taker” fee. If you make additional liquidity available to the site, you will pay maker fees. If you take away or remove liquidity, you will be subjected to taker fees.
Maker fees are paid by traders whose orders are not filled immediately. Instead, they increase the platform’s overall liquidity. For example, the buy or sell order will only get filled if the price of the asset increases or decreases to the value the order is set at. Taker fees are paid by traders whose orders are immediately filled from the liquidity available at the exchange.
Let’s show you this with a practical example:
- If you place a sell order for 1 Bitcoin at $63.000 when the asset’s value is $62.000, you are creating a market and adding liquidity to it. Your order won’t be filled until Bitcoin’s price increases, and at that time, you will pay maker fees.
- Contrary to that, if your sell order is at $62.000, it will be filled straight away, and you will remove liquidity from the exchange. Because of that, you have to pay taker fees.
It’s in the interest of cryptocurrency exchanges to keep the liquidity on their platforms as high as possible. As a result, taker fees are always higher than maker fees. When you use instant crypto swap platforms, you want the exchange to be completed as soon as possible. As you have hopefully understood by now, such transactions are accompanied by higher trading and network fees.
As you can see, there is a reason why the final balance might be different from what you expected, and there is very little we at ChangeNOW can do about it. The fees vary depending on the digital asset in question, how congested the network is at the time of the exchange, and how many steps we have to take to acquire the coin for you.
If you are sending coins from your private wallet, check the recommended mining fees on sites such as Mempool.Space. You want to ensure you aren’t overpaying (if you are sending Bitcoin). If you are depositing Ether, a good reference is the Ethereum Gas Tracker.
Things To Remember:
- ChangeNOW guarantees fair exchange rates, fast transactions, and a service that respects your need for privacy.
- Fees are an essential component of cryptocurrency transactions.
- Because of the volatility of crypto assets, prices change and fluctuate constantly.
- ChangeNOW charges you only the fees that are required to swap your coins with our liquidity providers.
- We are transparent with our fee structure and want to provide you with the best service possible.