It’s 2018, more people than ever are discovering crypto markets and are looking to invest. A lot of large institutions are looking to enter exchange businesses to get a piece of the crypto trading pie. Last week we heard reports that Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), was planning to create an open and regulated, global exchange ecosystem for cryptocurrencies. This means more competition than ever for users amongst exchnages.

We’ve recently seen some innovative mechanism design by some new exchanges to lure customers onto their platforms in 2018. The basic idea is to tokenize some trading services with incentivising users to trade and hold funds on platform. There are 2 concepts that are attracting investors to trade on one exchange compared to another:

Gaining Dividends by holding on the platform token Mining platform token

Many cryptocurrency investors I encountered were usually confused with these two concepts when they first encounter Transmining model. Its a relatively new concept and there is a lot of unintentional misinformation around the model. Lets try and break it down and understand these two concepts.

Gaining Dividends by holding the platform token

For most transmining exchanges, the investors will typically gain dividends in the form of revenue earned by the platform daily. Exchange platforms earns their revenue by charging a transaction fee from its users. in value. The total daily transaction fee the platform collected is distributed to platform token holders proportional to their exchange token holdings in the form of dividends at the next day.

Example A

John made a transaction to buy USDT $10,000 of BTC on CoinEx. Since CoinEx’s transaction fee is 0.1%, John will be paying USDT $10 to CoinEx(platform revenue). The dividend comes from the USDT $10 that John has paid to CoinEx and the fees paid by many other such users who trade on the exchange platform. In CoinEx’s case, dividend is calculated by this formula: Total fee earned divided by Total Circulating CET multiply by 80%.

Mining Platform Token

Transmining (also known as trade-driven mining or trans-fee mining) was a new type of mining first introduced by FCoin in May 2018. The world has since caught on with the concept of Transmining and many exchanges have adopted similar models to boost the transaction volume.

Under Transmining Model, the platform token is meant to be mined by the users by trading actively. For this reason, platforms have introduced the concept of mining difficulty to control the rate at which tokens are mined. The difficulty usually controls the amount of platform token that can be mined over a period of time (usually one hour). A typical miner will mine the platform token by trading aggressively till the point where they meet their individual quota for the mining period.

Example B

Following up from Example A, if the mining limit for CoinEx is 1000 CET/hour and assuming that the price for CET is USDT $0.10. To maximise profit, John will need to generate a transactional volume of USDT $100,000 to efficiently mine his quota for the hour. So instead of making a transaction of USDT $10,000, John needs to make 10 transactions of USDT $10,000 or 100 transactions of USDT $1000 to generate the required transactional volume. Since CoinEx’s transaction fee is 0.1%, John would be paying USDT $100 to CoinEx(platform revenue) with a transactional volume of USDT $100,000. John will subsequently be reimbursed with USDT $100 worth of CET (platform token).

There are some considerations that anyone looking at trade mining must make before committing to mining manually.

Efficiently mining and trading could be very time consuming.

Dynamic mining difficulty and tracking remaining tokens to be mined. Optimum number of trades and position sizing so you don’t over-trade and end up paying exchange fee without mining exchange tokens Managing risk on your trading capital. Speed of execution on trades considering price volatility. Being awake 24x7 to not miss out on hourly yield.

Usually, during genesis stage of mining, the mining profit will be significantly higher than dividends. When the platform has stabilised, the mining profit will be comparable to the dividends gained.

As cryptocurrency investors, these are mechanisms we need to understand before we start focusing on maximizing our profits. What each one of us must remember is that while you can measure passive income as a % of the said platform exchange tokens that you lock/hold, the bottom line lies with the said exchange platform token value which is also subject to bidirectional volatility.

Got some questions or have a new idea about earning with transmining? I’m on telegram: https://t.me/heterosapien