We recently made a major addition to the Variational docs: Omni will have no trading fees.
This will make Omni the first major trading platform to offer a zero-fee trading experience. Omni has no gas fees (using permits to move funds), and now, no trading fees. The only fees on the platform are a small $0.10 fee for deposits and withdrawals, to prevent spam.
This stands in stark contrast to existing centralized and decentralized exchanges, which often charge users (takers) up to 60bps per trade.
These fees can represent a significant execution cost–for example, a $5,000 taker order on Coinbase would cost $30 in fees (not even accounting for the spread). On Omni, an equivalent trade would cost $0.
How Does Omni Offer Zero Fees?
Revenue is generated from trading activities in two ways:
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Other major trading platforms (both CEX and DEX) generate revenue by charging a transaction fee based upon volume
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External (3rd party) market makers charge a spread (the difference between the bid and ask prices of an asset)
Omni is constructed entirely differently from existing CEXs and DEXs. On Omni, all users (takers) trade against the Omni Liquidity Provider (OLP) as a counterparty, and the spread is controlled by OLP rather than 3rd party market makers. This allows all revenue from the spread to be retained by OLP, rather than going to external makers.
Because spread revenue is earned by OLP, Omni does not need to charge fees in order to generate revenue for the Variational protocol – it can instead come from OLP. Because OLP’s liquidity is provided by the community, the vast majority of OLP revenue is still passed on to vault depositors as yield, while a small percentage based on platform volume is directed back to the protocol.
How Does This Benefit Me?
This zero-fee design substantially benefits users in multiple ways.
First, it makes trading cheaper. As mentioned at the beginning of the article, most exchanges charge takers up to 60bps per trade. These fees can add up over time. At 60bps, after 10 unique trades of $10,000, you’ve already paid $600 in fees–before even accounting for additional execution costs coming from crossing the spread!
Execution costs (the cost of completing a trade after accounting for the fees and spread) are a key factor in the profitability of almost all trading strategies, but are particularly important for frequent traders like day traders, swing traders, and momentum traders, even on liquid markets like BTC and ETH perpetuals. Our zero-fee design allows Omni to be highly competitive for these users, potentially offering lower execution costs than their current favorite CEX/DEX.
Second, Omni’s design allows for the entirety of the platform’s trading revenue to stay within the Variational ecosystem. Instead of 3rd party market makers extracting value from the platform via the spread, market making revenue goes directly to OLP depositors and, in a small portion, to the Variational protocol.
It Sounds Good, But What’s The Catch?
There isn’t one – really! We believe this design aligns incentives in the most beneficial way to our community. Users (takers) benefit from lower fees, and OLP depositors (makers) benefit from higher volumes.
Whereas 3rd party market makers are incentivized to widen the spread and extract value from the platform, OLP is incentivized to keep the spread as tight as possible to maximize volume (as the Variational protocol revenue from OLP is based on platform usage/volume). The majority of spread revenue captured goes back to our community vault depositors.
Additionally, because of how economies of scale impact OLP, as the platform grows we expect OLP to have lower execution and hedging costs than most traders. This will allow OLP to potentially offer tighter spreads on majors than most other trading venues, by passing along these savings. With no fees and tight spreads, we expect all-in execution costs to be highly competitive on Omni.
Conclusion
Omni's first-of-its-kind zero-fee model, powered by revenue generated from the spread, allows the platform to be competitive on majors like BTC and ETH, instead of just focusing on long-tail assets. By eliminating explicit taker fees and passing along tight spreads from an economy of scale, we aim to attract traders with lower overall trading costs, increase trading volume by offering a better user experience, and benefit liquidity providers with higher yield.
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