Market Anomaly: VIP / Rebate Gaming

• 07/08/2022 – 03/2023 – Binance Zero-Fee BTC (Spot): Thirteen BTC spot pairs with zero fees led to large shifts in market share and orderflow; after fees were reintroduced (03/2023) shares collapsed. (Binance)
• 09/07/2023 – Pair migration after fee changes (Spot): Incentivization of BTC/TUSD and similar pairs caused measurable pair migration and subsequent volume declines after later fee adjustments. (Binance, Kaiko)
• Ongoing – Negative-Maker / VIP Rebates: Major CEXs document negative maker fees / rebates for high VIP tiers (e.g. Bitfinex, OKX) - enabling rebate arbitrage (on real fills) and volume gaming to retain tiers. (bitfinex.com)

Context: research on spot wash trading highlights rebates and transaction-mining as a behavioural distortion driver - not a blanket accusation against platforms. (NBER)

1. Fee logic: Maker/taker structures, VIP tiers (30-day volume) and zero-fee windows change marginal costs per fill. Negative maker fees pay rebates to liquidity providers.
2. Behavioural path: Traders / market makers rotate into 0-fee or rebate windows, increase re-quoting (OTR↑) and accept round-trips if net cost ≤ 0.
3. System effect: Promotions and tier thresholds trigger volume migration, BBO flicker and lead/lag patterns; when incentives stop, volume and depth often quickly re-converge.
4. Distinguish: Fee models are common (stocks/FX too). The anomaly appears when signature clusters (RT-rate↑, Benford deviations, OTR spikes) persist without fundamentals.

• Pair migration into incentive windows: Volume share jumps immediately after fee updates; lead/lag shows the incentive pair leading and the standard pair following.
• Round-trip rate ↑ (short holding times): Buy→Sell or Sell→Buy within ≤ N seconds; small-to-medium notionals; low VWAP drift - cost optimization rather than directional intent.
• OTR spikes & BBO flicker: Many quote updates per fill on the incentivized pair; best-quote half-life shortens.
• Benford / round-size anomalies: Clustering of round sizes; elevated Benford-L1 distance vs baseline.
• Fee-event coherence: Patterns start / end sharply at UTC announcement times for fee changes or promotions.

• VIP ecosystem & 24/7: 30-day volume tiers create pressure to hit thresholds - sometimes with micro-sequences to maintain rank.
• Zero-fee / negative maker programs: Time-limited 0-fee windows and rebates shift orderflow and BBO stability; incentives can temporarily dominate price discovery.
• Transparency limits: No CAT-equivalent; often only L2 is public - intent-agnostic metrics (OTR/Benford/Lead-Lag) become essential.
• Competition for market makers: VIP-tier matching and rebate promotions intensify incentive effects and sequence artifacts.

Maker-taker debate (equities): Research shows rebates affect routing and execution quality; effects are measurable and regulable (Battalio/Corwin/Jennings; Malinova/Park).

Rules & audit infrastructure: FINRA Rule 5210 (quotations/transactions) and the CAT (SEC Rule 613) permit sequence attribution (Order→Amend→Cancel→Trade). Crypto spot lacks a market-wide audit duty.

Result: Fee-driven distortions are detected sooner in regulated markets; on CEX spot they can persist longer and have larger visible market-share effects.

• MiCA timeline: In force 29.06.2023; applicable since 30.06.2024 (incl. ART/EMT) and 30.12.2024 (CASP duties). Transitional regimes until 01.07.2026 possible → 2025/26 heterogeneous supervision. CASPs must manage market integrity & conflicts (including fee incentives).
• IOSCO stance: Focus on market integrity & cross-market risks; fee design with adverse incentives is now an intent-agnostic surveillance target.
• Practice benefit: Early detection reduces misrouting, phantom depth traps and slippage; helps produce best-execution evidence (MiCA/MAR compliant).

Baseline: 30-day history, same time-of-day (UTC), hourly bins, ±15 min tolerance, per symbol × pair × venue.

Metrics (selection): Volume-share shift (pp) of incentive pair, round-trip rate (RT-rate), OTR at the touch, lead/lag (1-s bins) between incentive & standard pairs, VWAP drift vs mid (bps), BBO t½ (ms), Benford-L1, round-size ratio, spread jumps (bps).

E3 – high (fee-driven sequence dominates market picture)

• Volume-share shift ≥ P99 within ≤ 24 h after fee event and Lead/Lag: incentive-pair leads ≥ 700 ms over ≥ 5 consecutive 1-s bins,
• RT-rate ≥ P99 while VWAP-drift vs mid ≤ P40 (lots of trades, little direction),
• OTR ≥ P99.5 and BBO t½ ≤ P1 on the incentive pair,
• Event coherence: pattern begins/ends ≤ 15 min around official UTC fee-event timestamp.

E2 – medium (partial signals)

• Volume-share shift ≥ P98 or RT-rate ≥ P98,
• Benford-L1 ≥ P95 or round-size ratio ≥ 1.5× baseline,
• Lead/Lag leadership > 500 ms over ≥ 3/5 bins,
• OTR ≥ P99 or BBO t½ ≤ P5.

E1 – low (early warning)

• Sudden pair migration (≥ P95) into a zero-fee / negative-maker window,
• Mild RT-rate increase with spread jump ≤ P60.

• Event filter (UTC): Only evaluate with an official fee announcement; flag pre-announcement leaks/rumours. Treat macro slots (CPI/FOMC), listings/relistings, MM withdrawals, on-chain stablecoin news separately.
• Cross-pair / venue checks: Inspect both incentive and standard pairs at the same venue and across venues; true market impulses are broad, incentive effects remain pair-centric.
• Legitimate alternatives: Rebalancing, maker inventory strategy, user acquisition promotions; lack of reversion after incentive end suggests structural change rather than benign promotion.
• Data quality: Discard windows with L2 gaps/errors > 1%; measure in bps/ms, UTC-stamp, record notional.

• Execution & cost: Detect fee-driven phantom depth - avoid blindly routing into incentive pairs; use core pairs for impact-critical orders and incentive pairs for low-cost resting quotes.
• Strategy & risk: Fee-aware scheduling (before/after event), hedge-aware pairing and RT control reduce slippage and turnover cost.
• Best-execution & supervision: E-level logs (volume shift, RT-rate, OTR, t½, lead/lag) provide auditable dossiers - aligned with MiCA/MAR expectations (intent-agnostic).

• Binance – Launch of Zero-Fee Bitcoin Spot Trading (06.07.2022); Updates on Zero-Fee Trading (15.03.2023; 24.08.2023).
• Kaiko Research – Binance Volume Plummets After End of Zero-Fee Trading (27.03.2023); The Impact of Binance’s Zero-Fee Volume (31.07.2023).
• Bitfinex / OKX – Fees / Negative Maker Rebates (Spot VIP) (ongoing).
• Kraken – Fee Schedule & VIP-Upgrade Program (ongoing).
• Wiley Online Library – Malinova / Park (2015): Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality.
• SEC / EMSAC – Battalio / Corwin / Jennings (2015/2016): Make–Take Fees & Limit Order Execution Quality.
• NBER – Cong / Li / Tang / Yang (2022/2023): Crypto Wash Trading.
• ESMA – Statement on MiCA Transitional Measures (17.12.2024).