ShapeShift drops trade fees to promote self-custody for the 'normal crypto user'

Quick Take

  • Crypto exchange ShapeShift now allows users to trade on its platform with zero commission, hoping to bring self-custody to the mainstream
  • ShapeShift expects a 30% surge in trading accounts and have plans to start selling its loyal tokens if the model goes well

Crypto exchange ShapeShift is rolling out zero-fees in the hope that it will chip away at the dominance of custodial exchanges like Coinbase and Kraken, the firm announced Wednesday.

“The reason that crypto is important is that it allows people to have control of their own assets,” ShapeShift’s CEO and Founder Erik Voorhees told The Block. “But unfortunately most people just give them to a custodial third-party exchange.”

ShapeShift was one of the first crypto trading platforms to institute a non-custodial model in 2014, which means that all its users hold their own funds and private keys, whereas custodial exchanges like Coinbase and Binance store users' funds and keys as well as sensitive personal information.

“We hope that by eliminating commission, we will encourage people to go over to the non-custodial model,” Voorhees said.

Will zero trade fees hurt ShapeShift’s business?

All users of the company’s platform will now automatically receive 100 FOX tokens—loyalty tokens available to ShapeShift members— and can continue trading commission-free as long as they hold on to the tokens. Depending on how many tokens customers have, they can do a certain amount of free trading every 30 days. The major difference between FOX tokens and Binance’s tokens, Voorhees explains, is that with ShapeShift, customers do not lose their tokens when they take in the benefits.

The move by ShapeShift echoes the price consolidation that has swept U.S. brokers. Vanguard has endorsed free exchange-traded fund (ETF) trades for a while and Fidelity offers zero-commission index funds and ETFs. Last month, a few big-name brokerages including Charles Schwab and TD Ameritrade also announced that they were to get rid of commissions on online stock and ETF trading.

ShapeShift does not believe that dropping fees will hurt their revenues, Voorhees said. Besides revenues coming from fees paid by users who do not hold FOX tokens, ShapeShift also plans on selling its tokens to new customers in exchange for perpetual free trading service if the model becomes a success.

He anticipates a 30% surge in trading accounts as a result of this move.

Is crypto heading to a non-custodial future?

Non-custodial exchanges allow for a higher degree of anonymity and security. It does not require accounts for trading and is a convenient alternative for people who want to make a quick trade or are reluctant to entrust an exchange with personal information.

“So far, non-custodial exchanges have low liquidity, bad prices, or both,” Voorhees said. ShapeShift aims to solve both problems by offering high liquidity and zero trade fees.  

“I think self-custody is where the crypto industry is heading to in the long term,” he added.

But ShapeShift does not have plans to transition into a completely decentralized platform, an open-source, permissionless on-chain platform where users use smart contracts on the Ethereum network to trade tokens.  Branding itself as an “exchange-agnostic” platform, ShapeShift does not wish to constrain itself to a network that is used almost exclusively to trade Ethereum tokens, according to Voorhees.

“Our target audience is a normal crypto user who has several kinds of assets and want a safe way to hold and trade them,” he said.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.