Are you a "leek"? The key indicator for determining this is your transaction costs. This article delves into the issue, arguing that high and often overlooked transaction costs, rather than market makers, are the true culprits for exploiting retail investors. This article is based on an article by Huang Shiliang and compiled, translated, and written by TechFlow.
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The leeks are cut by transaction costs, not by the dealers.
"Leek" is a very cheerful term in the cryptocurrency world, and it seems almost everyone calls themselves a leek. All kidding aside, we really should avoid being a leek, or we'll be ripped off.
Self-knowledge is crucial. How can one determine if they are a "leek" (a type of scam)? This is a good question. I believe there's one metric that can answer this question: their transaction costs.
The higher the transaction costs of the trading tools, trading products, and trading strategies you use, the more likely you are to be a leek.
When we invest, nominal returns often come from a few percent of market fluctuations. However, transaction costs, including fees, slippage, funding rates, gas fees, and so on, are clearly expenses, yet they are often overlooked. These deterministic costs often outweigh the potential nominal returns. This is because costs are inevitable, while returns are uncertain.
Any transaction that does not take these confirmation expenses into account is a "leek" behavior.
Buffett once described a hypothetical case at a shareholder meeting: a wealthy family might do nothing and let their fortune grow naturally. But if they hire an analyst, broker, or fund manager to manage their assets, these individuals will diversify their investments, constantly trading here and there, and the family assets will slowly drain away as fees. The result is that others become richer, while the family loses money.
Buffett may be referring to Bill Gates, who hired a financial management team and lost most of his Microsoft stocks.
There are also many similar studies in academia, such as analyzing why tens of thousands of retail accounts on the Shanghai Stock Exchange lost money during the bull market. In fact, the principal was converted into handling fees and stamp duties and given to the Shanghai Stock Exchange and the country.
In order to avoid being a loser, before any transaction, you should always ask: What is the total cost of this transaction? And then ask, is there a lower-cost operation strategy?
There are various trading products and trading strategies in the cryptocurrency world.
I think the number one transaction cost is deposits and withdrawals. You know, this thing is extremely expensive. Not only are the transaction fees high, but what's more terrible is that this thing is very risky. Your card will be frozen and you may even be arrested.
Tether reported $13 billion in profits in 2024, and I'm guessing more than half of that came from commissions paid by the "leeks" (the other half was interest earned on things like Treasury bonds, which were collateralized by the "leeks"). So, don't mess around with deposits and withdrawals.
Common trading products include spot, perpetual contracts, and options. Trading methods include on-chain DEXs and CEXs. The various explicit transaction fees are easy to understand: spot trading typically costs 1,000 to 2,000 yuan, while futures trading costs can be in the tens of thousands. However, these are simply matching fees.
Another major component of transaction costs is hidden. For example, the funding rate for perpetual contracts depends on luck, and the time cost of options is almost terrifying.
The funding rate for perpetual contracts of major currencies is generally 10% annualized, while that of altcoins is over 30%. However, this thing can sometimes make money, but it is uncertain. What is certain is that the cost of holding a contract for a long time is very, very high, especially for altcoins.
If you are not a professional funding rate arbitrageur, but try to trade contracts instead of spot trading, then you are definitely a leek.
The same goes for options. The trading and holding costs of options are much higher than perpetual contracts. However, I am not an expert. I have held a few small amounts of ETH calls and puts, and finally found that I lost everything.
There are also some fancy strategies in the cryptocurrency circle. Common ones in exchanges include grid trading, dual-currency financial management, and copy trading.
Almost all of these fancy strategies on CEX have extremely high transaction costs.
I used to think that Grid Robot was a good product and I used it many times. In fact, it is just a trick used by CEX to trick users into paying transaction fees.
I haven't seriously tried dual-currency investment, but I've always felt that its costs must be incredibly high, otherwise it wouldn't be possible to offer a 100% annualized return, and the market maker would absolutely guarantee a profit. I asked ChatGPT about it, and since it's essentially an option, I imagine buying options directly would be cheaper. I'm too lazy to research it.
CEX also offers a wide range of leveraged trading models, but any leveraged trading involves higher costs. Interest payments are incredibly high, and while time is your friend, holding a leveraged position is no longer your friend.
What I admire most are those who use huge amounts of leverage to speculate in real estate. They take pride in owing the bank money, and the more they owe, the more glorious they think they are. I am completely impressed.
Binance announced revenue of $16 billion in 2024. Remember the big crash in early 2025? Everyone said it was caused by Binance cashing out its profits.
Binance + Tether, the two companies will have a cumulative annual revenue pool of nearly 30 billion US dollars in 2024. This is exactly the transaction cost of the leeks. We don’t know how much they have earned, but they have earned nearly 30 billion anyway.
The costs of on-chain trading products and strategies are even more complicated.
The most common spot swap transactions in DEX have all kinds of strange costs.
Gas fees and transaction fees are considered explicit.
There is no doubt about the gas fee. It is not a fixed time and fluctuates in various ways. This is the inevitable cost of on-chain activities.
The transaction fee of swap also varies with the routing of the fund pool. For example, Uniswap has a 0.3% fee and a 0.01% fee. After Uniswap V4 opened up custom fees for fund pools, there were even inexplicable pools that charged a 99% fee.
In addition to the explicit gas fees and transaction fees, the greater cost of trading in DEX is implicit.
The biggest hidden cost is the MEV sandwich attack. As long as your slippage is set too high, you are doomed and have to pay a high slippage tax.
Normal slippage can be quite significant when trading small pools of capital, especially for smaller currencies, where a 10% slippage cost is common.
The slippage cost of the IDO grabbing strategy is outrageous, and it is common to pay 50%.
The transaction costs of pump.fun, the most popular platform of the past two years, are ridiculously high. Pool creation requires everyone to pay, and transactions are subject to a transaction tax. Especially since these meme coins are typically traded quickly, with transactions occurring every few minutes. With a 0.5% transaction fee, your principal will be wiped out after just a few transactions. Meme coin traders are absolutely exposed to exponential friction.
Now almost all swaps have cross-chain swaps, which brings about complex cross-chain transaction fees. Two miner fees must be paid at the same time, as well as bridge tolls.
I once relied on Layerzero to exploit the price difference between unichain and ETH L1 to make money. Afterwards, I calculated that Layerzero was the one who made the most money.
Airdrops are no longer a hot topic. This strategy comes with huge transaction costs. Airdrops are a classic example of a one-person-at-the-other-end strategy. It's a typical tactic where project owners sell their tokens by charging users transaction costs.
I feel that the on-chain gameplay is more likely to treat users as fee miners than CEX, and the hidden costs on the chain are higher than CEX.
Uniswap's total front-end fee revenue in 2024 is nearly US$100 million, and the cumulative transaction fees contributed by swap users on Uniswap in 2024 totaled US$1.27 billion.
Pump.fun is even more powerful. The platform revenue (that is, the revenue collected by pump.fun officials) will reach 313 million U.S. dollars in 2024, and users have contributed a total of 738 million U.S. dollars in costs (it seems that half of it goes to pump.fun officials and half to lp).
You see, the fee harvester in DeFi is not a small number. We don’t know how much we earn, but the DEX platform + LP token makes a lot of money.
Please be sure to clearly record your transaction costs during specific investment operations.