A researcher, Larry Cermak, while breaking down BitFinex’s LEO token burn sequence and volume, picked up that the exchange is interested in deep-pocketed clients.
With more cryptocurrency exchanges launching to cater for the growing number of investors and traders, some have chosen a specific path. For instance, Binance has selected to cater to the general crypto trading activities while BitMEX is interested in attracting margin traders. BitFinex, on the other hand, is signaling for high net-worth investors according to the latest analysis.
According to the analysis, while the volume reported by BitFinex tally with the revenue generated, the revenue-volume ratio is not as consistent – the revenue tends to decrease diverging from increasing volume:
“Throughout the first four days of burns, BitFinex captured more than 0.15 percent of the volume. But in the last two weeks, the ratio has dropped by 38 percent to an average of 0.1 percent. This could mean three things: larger clients are trading on BitFinex, BitFinex has not been burning enough LEO, BitFinex is over-reporting their volumes. The likeliest reason is that BitFinex has been attracting larger clients.”
A Tiered System Favors the Deep-Pocketed
As per Cermak, the exchange’s thirst for deep-pocketed clients can further be seen in the exchange’s tiered system. With the system, the more high-value trades a client makes within the month, the less trading fees they pay, that is, “the fees decrease as a participant’s monthly trading size increases.” Therefore, although the volume keeps increasing in a month, the revenue collected is smaller if the high-value clients conducted the trades.
The researcher added:
“The increase of larger-volume clients would be consistent with the lack of retail throughout the recent price rally. Trading volume data suggests the catalysts on June 22 (when BTC first broke $10K) was a large trade/set of large traders on BitFinex.”
The LEO token was sold by BitFinex in a private sale which saw the exchange controversially raise $1 billion. According to the LEO whitepaper, those holding LEO tokens will enjoy discounts when trading on the exchange. Coincidentally, large-volume traders also hold LEO, thereby bringing down the revenue despite an increase in the traded volume.
Large-Volume Traders Influenced BTC Price Rally
Larry notes that the recent price rally may have been fueled by these large-volume traders on BitFinex. In a Twitter thread, Larry said:
“Therefore, the analysis of LEO burns could hint at whales playing a large role in the recent price rally.”
In line with their burn schedule, BitFinex would buy back LEO tokens amounting to 27 percent of the exchange’s revenue. This would be followed by burns every 3 hours. By burning these tokens, the exchange plans to remove them from circulation to strengthen its cash flow.
All the same, the amount of LEO token burnt depends on the amount of revenue the exchange makes from trading fees combined with the LEO’s market price. As of July 3, BitFinex had burnt $2.8 million worth of LEO tokens in a 151 on-chain burning events.