"Zero Fees" scenario: Lighter collected costs with a high delay
Original title:Lighter's "0% Fees" Are absolutely 5-10x More Expensive Than Other Exchanges
Original by: @PerpetualCow, encrypted KOL
Original: AididiaoJP, Foresight News
There's a truth in the mall: if a product is free, you're the product itself。
Lighter DEX is promoting "zero fees" to the diaspora traders. It doesn't sound as good as it really is。
However, Lighter did not indicate in sharp big words the structure behind these "free" transactions。
Lighter offers two types of accounts: once you know how to run the delay, you find that 0% of the fees are actually the most expensive first-class fees on the platform。
That 200-300 millisecond delay is all they have in business。
What exactly does 300 milliseconds mean
One blink takes an average of 100 to 150 milliseconds. As soon as you blink twice, faster traders have captured price fluctuations, repositioned positions and made reverse deals with you。
The encrypted market is highly volatile, with prices varying approximately 0.5 to 1 basis point per second at a typical level of volatility (annualized 50-80 per cent)。
In other words, in 300 milliseconds, random market fluctuations alone result in average price movements of 0.15 to 0.30 basis points。
The real cost of "free."
If we quantify it:
Academic studies on reverse selection costs (Glosten & Milgorom, Kyle “s Lambda, etc.) indicate that the advantage of informed traders is usually 2-5 times the random price volatility。
If the random slide point within 300 milliseconds is about 0.2 basis points, the reverse selection would add 0.4-1.0 basis points。
For active traders and market traders, the actual costs are broadly as follows:
:: Actual cost of standard accounts: 6-12 basis points per transaction (0.06 per cent - 0.12 per cent)
:: Actual cost of advanced accounts: 0.2-2 basis points per transaction (0.002 per 0.02 per cent)
"Free" accounts cost 5-10 times more than paid accounts。
The zero charge is a marketing figure and the real cost is hidden in the delay。
The advanced account is actually more profitable
In any case, standard accounts (0 per cent handling fees) are not the preferred option。
Neither small-scale, large-scale, skin-skinners, band traders nor even passive investors. Not for the market, not for anyone。
"I'm just a small family. I don't need a high-level structure. I don't know
Wrong。
It is even more difficult to afford a slide. If you trade with $1,000, you lose 10 basis points, you lose $1 per transaction. Fifty times, 5% of your account disappears silently。
"I don't deal very often. Delays don't affect me. I don't know
Wrong。
If you don't deal very often, the cost of the advanced account is insignificant。
But even in a few transactions, you get even worse. Since the cost of avoiding such losses was almost zero, why should any disadvantage be accepted
Let's just upgrade to the top account。
There's a precedent for this pattern
Traditional financial markets have long seen this technique, known as purchase-flow payments。
@RobinhoodApp used to attract the diaspora with "free trade" and then gave the order route to the market, which allowed them to profit from the non-intelligible order of the diaspora, thereby spreading the pattern。
The Lighter model is structurally similar. Standard accounts do not receive free transactions, but more slowly. Such delays are translated into profits by faster participants。
The trading platform does not have to charge you for handling, because you are actually paying for the quality of the execution。
Lighter, right and wrong
Lighter didn't hide the delayed data, after all, in the document。
But transparency does not mean clarity。
It's a strategy to highlight the "0% fee" in the title, but hide the "300 ms delay" in the rules, which pursues the registration conversion rate rather than the user's understanding。
Most had no understanding of the meaning of delay or of what was a reverse choice, and it was natural that the actual cost of the equivalent could not be calculated。
And Lighter clears this。
There is no need to argue that the advanced account is in any way more profitable than the standard “zero charge” account。
