Above is a graph showing the fees that five exchanges paid to process user withdrawals on the Ethereum blockchain during the infamous Black Thursday price shock last month. Analyzing exchange behavior during this time of extreme network congestion reveals important differences in transaction processing strategy.
Fees on Ethereum are measured in gas. More complex transactions require more gas, and the price paid for gas fluctuates with changes in demand. These fees go directly to miners, who will prioritize transactions with a higher fee.
Binance and OKEx optimize for fast transaction times.
Binance (in yellow) and OKEx (in red) appear to be paying a premium to the market price, evidenced by the yellow and red parallel lines on the graph. This is likely to ensure their transactions are included in the next mined block. When the price of gas spiked, around 8AM UTC on March 12th, they both had to compute a new threshold for their transactions to go through. Perhaps related, on March 12th at 12pm UTC, OKEx announced that the platform would be down 30 minutes for system maintenance.
Coinbase, Kraken and KuCoin optimize for lower costs.
Coinbase (in blue) and Kraken (in pink), on the other hand, appear to be continuously monitoring the gas market and updating their gas prices accordingly. 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.
Meanwhile, KuCoin (in green) also follows the market price, but is consistently paying a slightly higher gas price than Coinbase and Kraken. This suggests that they are intentionally adding a larger buffer to ensure timely transaction processing.
While Coinbase Pro does not pass on transaction fees to its users, Kraken and Kucoin both charge users per withdrawal.
Centralized Cryptocurrency Exchanges (CEX) serve as intermediaries that are run by a third-party operator. Similar to traditional stock exchanges, CEXes connect buyers and sellers and allow them to trade coins for fiat money or other cryptocurrencies. Different exchanges offer different prices for the assets they list, based on their proprietary price mechanisms.
Binance is the largest centralized exchange in the world in terms of 24h volume, with $2.9B average daily trading volume in 2019. Binance was initially based in China, but later moved to Malta due to China’s tightening of regulations. During Black Thursday, Binance’s trading volume reached $6.3B.
Coinbase is headquartered in San Francisco, California. The exchange is famously known for its wallet services and fiat-to-crypto exchanges. Coinbase Pro is its more advanced trading platform, which by itself ranks third in the world in terms of 24h volume (over 200M). During Black Thursday, Coinbase Pro’s trading volume reached $2.1B.
OKEx was originally Hong Kong based and also moved to Malta for regulation purposes. OKEx is currently #13 in ranking when looking at 24h volume traded. During Black Thursday, OKEx’s trading volume reached $5.1B.
KuCoin is based in Singapore and calls itself the “The People’s Exchange”. It is a crypto-to-crypto exchange only, which means fiat, or national currencies, cannot be traded. During Black Thursday, KuCoin’s trading volume reached $225M.
Kraken is the fifth largest centralized exchange, with $154 million traded every day. Like Coinbase it is based in San Francisco, and was one of the first to be founded, back in 2011. During Black Thursday, Kraken’s trading volume reached $1.2B.