Overview: Negative Maker Fees
Negative maker fees are now supported on Injective! Any exchange built on Injective can allow market makers to take advantage of negative maker fees on governance-approved listings.
For markets with a negative maker fee, the trading fees for market makers will be calculated at a negative rate, which will provide an immediate monetary benefit for those who provide liquidity to the market. In short, instead of trading fees being collected from those who provide liquidity on Injective, monetary compensation will be given whenever negative maker fees are activated on a specific listing.
What Are Negative Maker Fees?
Negative maker fees are fees that are paid back to traders who provide liquidity (i.e. tokens) to a market. Traders who undertake to purchase or sell at specified prices at all times are considered market makers.
Prior to the mainnet chain upgrade, makers incurred a trading fee on all markets. To provide a further incentive to market makers, Injective Improvement Proposal 159 (IIP-159) was submitted and approved to enable negative fee rates. The proposal also approved the restructuring of base trading fees across Injective exchange dApps and reward programs to allow this to take place.
Which Market Listings Will Provide Negative Maker Fees?
All negative maker fees are proposed and initiated for market listings through governance proposals.
Both a listing and a proposed fee rate must be approved through governance for negative maker fees to take into effect. Once a negative maker fee for a given market is approved, all exchange dApps on Injective will reflect this new change and makers will be able to receive their trading benefit immediately.
How Are The Fees Calculated?
Negative maker fees and taker fees are calculated in relation to one another. Each market presents its own maker and taker fee, which is proposed and approved by the community through governance proposals.
While negative maker fees may be proposed at any rate, the Injective blockchain ensures that a taker fee is at least 8.4x larger than the maker fee, as negative maker fees are generated through the taker fee. In essence, takers within the specified market will be paying a slightly higher trading fee in order to receive the benefit of higher liquidity from market makers.
For example, if there is a proposal to implement a -0.01% negative maker fee for a market, then the taker fee must be at least 0.084%. The taker fee proposed may be greater than 0.084% in this scenario, but it cannot be lower than this.
How Do Negative Maker Fees Affect Trading and Discount Rates on Injective exchange dApps?
Prior to the Mainnet Chain Upgrade
Each market on Injective exchange dApps has its own base trading fees. The trading fee structure, however, depended on (1) the amount of INJ staked and (2) the total fees paid (in USD) in the past 28 days. Traders would receive a discount on the base trading fee based on their respective VIP trading tiers.
The fee structure was calculated at the same rate for both makers and takers.
After the Mainnet Chain Upgrade
Base trading fees for markets on Injective exchange dApps that do not have a negative maker fee will still be calculated at the rate prior to the chain upgrade.
For markets that do have a negative maker fee, the base trading fee will be calculated at a rate as determined by specific governance proposals that seek to implement negative maker fees.
For example, IIP-162 proposes to update 17 markets to enact a -0.01% maker fee and 0.1% taker fee, which will fulfill the 8.4x rate chain requirement.
The fee structure, however, for all markets will change, regardless of the negative maker fee implementation. The new fee structure now depends on (1) the amount of INJ staked and (2) the total volume trade (in USD) in the past 28 days.
In addition, for negative maker fee markets, the maker rate discount will be nullified, as the discount will be recouped through the negative maker fee implemented.
How Does This Impact Market Makers?
Market makers, both retail and institutional, can immediately begin earning incentives for providing liquidity to certain markets.
Injective exchange dApp negative maker fees also provide market makers with one of the lowest negative rates available on either a centralized or decentralized exchange.
With this benefit, and a Dedicated Market Maker program that can provide monetary rewards of up to 95,000 INJ every four weeks based on trading volume and token price, market making institutions have multiple earning opportunities simply by trading on Injective exchange dApps with Injective’s API.
Trading firms, such as Anti Capital, have earned 454,640 INJ (or $1.63 M USD mark to market) in DMM rewards alone, during a period of 32 weeks at the time of this publication.
How Does This Impact The Community?
Negative maker fee markets can be largely beneficial to the overall liquidity available on exchange dApps built on Injective. With one of the highest negative maker rates available on any exchange (decentralized or centralized), it provides an immediate benefit for market makers to provide liquidity across Injective exchange dApps.
Higher levels of liquidity will provide exchange dApp users with a more favorable trading environment. This can lead to more orders being placed and more trading volume as a whole.
In effect, should there be a slight dip in a total burn bucket at the start of any negative maker fee market listing, an increase in trading due to liquidity will more likely lead to more fees collected by Injective, positively affecting the Injective Burn Auction bucket size.
Negative maker fees, in total, look to bring benefits to both makers and takers as a whole, positively affecting trading environments for all Injective exchange dApps.
Injective is an open, interoperable, layer 1 blockchain built for finance applications.
Injective was created using the Cosmos SDK and is able to achieve instant transaction finality while sustaining lightning-fast speeds. INJ is the native deflationary scarce asset that powers Injective and its subsequent ecosystem. Injective is incubated by Binance and is backed by Pantera Capital, Hashed and Mark Cuban.