Kucoin Bonus Payouts Don’t Add Up

Coming Back to Kucoin

After laying low in the crypto — space for several months, I recently started spending more and more time looking at projects, chatting with friends, and increasing my positions in several coins. I don’t need to spend time talking about preferred coins, or where I think the market is going, as you can find a hundred other opinions with the click of a button. But one of the tokens I’ve really been enamoured with since I first bought in at the end of 2017, was KuCoin exchange’s KCS token. This article is about that token, and the discrepancies I found after buying back in and receiving the daily bonus for over a week.

New Bonus Schema

Between July 10th and September 26th 2018, during the time I was checked out of the crypto scene, Kucoin switched over their bonus system from a dust-based bonus (“50%” of all fees collected in traded tokens) to a flat KCS bonus (“50%” of all fees collected in BTC value spent to buy KCS on market, which is then paid out to KCS holders on-platform). I like this change

Step 1: Resources, Links, Sources

Sheet #1: My KCS Payout Spreadsheet (Based on $USD volume — Contains 2 tabs. Tab #1 assumes 90m tokens receiving payout as advertised, Tab #2 assumes Kucoin’s locked tokens are also receiving payouts)

Sheet #2: KCS Payout Spreadsheet (Linked in Telegram by Kucoin Admins & Linked by team in their Reddit FAQ)

Link #1: Kucoin’s new bonus system announcement

Link #2: Kucoin’s “About Kucoin Bonus” w/ Sample Calculations

Link #3: Kucoin’s bonus going live (with 50% of fees collected)

Link #4: KCS Holder discounts

Link #5: Institutional Investor programs

There are also a variety of reddit posts with relevant information (like this one).

Step 2: Math & Relevant Information

For this next section, I am going to assume you are holding 2,800 KCS like I was during the time in question. From the above links, you can find the following information:

User Bob holds 10000 KCS in his KuCoin account. Let’s say in October, the average volume of our entire exchange per day is 10000 BTC, according to our current fee rate, the trading fee we collected per day is 20 BTC. Bob will get bonus at 20 * 50% * (10000/100000000) = 0.001 BTC per day, 0.001 BTC will be converted to KCS and released to his account.

From Link #2, we have the equation to calculate the daily bonus. It can be simplified as such (Daily Volume * 0.002) * 0.5 * (KCS held / Total KCS). In other words, the fees of 0.1% which apply to each side of a trade, multiplied by the total daily volume gives us the amount of fees collected by KuCoin. Multiply that by 50% to get the amount that the token holders will receive. Then, each user will receive the relevant percentage of those tokens based on the how much KCS they hold, over the total KCS in circulation (100,000,000 in KuCoin’s Example).

On December 12th, 2018. KuCoin Exchange did $12.5M daily Volume, so on the 13th, when the bonus was paid out. This information was taken from CMC and the bottom of Kucoin’s Site.

Using the equation above from Link #2 (with updated circulating tokens to ~90m), Kucoin’s own spreadsheet (Sheet #2), and My Spreadsheet (Sheet #1 — Tab #1), this should lead to a payout value of ~$0.39 on 2,800 KCS.

Sheet #1 —Example from my personal spreadsheet

Sheet #2 — Example from KuCoin’s Officially linked spreadsheet

Both official (and personal) expected payout lines up. Below is what was received for this period:

KCS payout for December 13th, 2018 — on 2,800 KCS

At first I figured I did the math wrong, so I ran it through their Calculations posted in their article (Link #2, quoted above).

(Daily Volume * 0.002) * 0.5 * (KCS held / Total KCS)

$12,500,000 * 0.002 * 0.5 * (2,800 /

90,730,576)

= $0.386

So why is the payout almost exactly 50% of what it should be every single day, and what is advertised?

Trading Fee reductions?

As announced by KuCoin, KCS token holders can receive a discount on all their trades by up to 30%. Of course, they would need to own 30,000 KCS to get this full bonus, which means that with ~80,000,000 KCS sitting in KuCoin’s wallets, a maximum of ~2,666 users could be getting a full 30% discount on every trade, 10,000 users could be getting a 8% discount on trades, 25,000 users could be getting a 3.2% discount, etc. Since, KuCoin has announced that they have more than 5 million users, the chances of 2.6k users with an equal split of tokens being responsible for the entire daily trade volume isn’t very likely. And even in that unlikely event, that would reduce the payout by a maximum of 30%.

As for institutional investing, while KuCoin promises between 20% — 80% discounts on trading fees based on daily volume, the incredibly low trade volume on KuCoin, would be a significant deterrent to anyone attempting to trade any large volumes (Especially with much larger volume exchanges offering competitive trading discounts), when there is easy access to OTC markets on plenty of other exchanges.

With that being said, It would also be a incredibly unbelievable leap to assume that combination of KCS holder discounts AND institutional investor trading are just the right volume every single day, to reduce the bonus by the 50% required for us to arrive at the current daily payouts.

What else could explain it?

The other (more plausible) explanation, is that KuCoin are paying the KCS bonus to themselves (or rather their locked and “un-circulating” tokens). In my spreadsheet (Sheet #1 — Tab 2), you can see the following result of including those tokens into the payout recipients.

Sheet #1 — Tab 2. Including entire KCS supply in payout

As you can see, this reduces the payouts by 50%, and brings them in line with what KCS holders are actually receiving (Several days have gone by now with this sheet being an accurate predictor of payouts).

Why would this be a problem?

All of Kucoin’s articles, promotional materials, equations, spreadsheet calculations and other materials ALL are inflating the advertised payout to KCS holders by a full 100%. It also dramatically reduces future profitability of the token, and means that users are receiving HALF of what they were told they would receive, and the KCS token should be valued at roughly half of what it currently sits at in price.

Due Diligence — Contacting KuCoin

KuCoin admins were contacted several times on telegram to confirm this issue, but would not comment and instead referred me to KuCoin Support. On contacting Support, I was told that they couldn’t answer me and would need to contact me via email. I have yet to receive and confirmation, acknowledgement or contact of any kind since then.

What can be done?

At this point, making users aware of what is happening is a high priority, as well as raising the issue publicly until KuCoin representatives make a statement. Personally, I have sold all of my stake in KCS, and have withdrawn everything from the exchange until we know more.