Why crypto exchanges are slashing fees to zero — even at a loss

"For smaller exchanges, given the current structure, it's just a question of whether they hold on four years or five before going under." — industry insider

Fee wars among South Korea's digital asset exchanges are nothing new, but the latest round carries a different kind of tension: for smaller players, it has become a fight for survival. The fear driving the moves is that without a bold gambit now, losses will simply pile up until the market forces them out. The strategy is to maximize trading volume and customer base while new, deep-pocketed shareholders provide capital support — and then be ready when deregulation and new business approvals eventually arrive.

A fee-cutting battle centered on smaller exchanges is now in full swing, according to the digital asset industry. DigitalX — formerly Korbit, now part of Mirae Asset Group — announced it would waive trading fees on all won-market pairs for one year starting Aug. 24. Coinone fired back just two days later, cutting its trading fee rate to zero percent across all pairs starting Aug. 26. Because fee vouchers can be reissued without limit or eligibility requirements, the arrangement amounts to free trading indefinitely until further notice.

The market's top two exchanges, Upbit and Bithumb, have also rolled out partial fee waivers. Upbit ran a zero-fee promotion on select stablecoins listed on its won market, while Bithumb waived open-API trading fees across all won-market pairs. The scope is narrower than the blanket waivers offered by the smaller challengers, but the fee competition is clearly spreading across the industry as all players scramble for customers and volume.

With large financial firms now among their investors but regulatory barriers blocking any immediate synergies, fee waivers are essentially the only card smaller exchanges have left to play. Trading volume across the virtual asset market has declined, and a string of industry incidents has shaken public trust, dragging down earnings across the board — but the blow falls hardest on smaller exchanges with weaker customer bases and thinner capital cushions. "The big players can weather a drop in profits," one industry insider said. "But for smaller exchanges that have been in the red for years, a fall in trading value will directly threaten their survival."

Dunamu, which operates Upbit, and Bithumb both saw operating profit fall roughly 80 percent in the first half of this year. Coinone and DigitalX, which handle far less volume, have been unable to escape losses for years. The situation is made worse by the fact that smaller exchanges depend on trading fees for nearly all of their revenue. Last year, fee income accounted for 100 percent of Coinone's total operating revenue and 99.99 percent at DigitalX. Even Dunamu derived 96.9 percent of its operating revenue from fees in the first half of this year, and Bithumb earned virtually all of its revenue the same way.

Smaller exchanges find themselves in a position where they must secure trading volume — even volume that generates no revenue — before anything else. Corporate investment in virtual assets remains stalled, and regulatory uncertainty continues to block collaboration between financial firms and virtual asset operators. Meanwhile, compliance costs — covering anti-money laundering, know-your-customer requirements, data protection and suspicious-transaction monitoring — must be borne regardless of an exchange's size. Smaller exchanges are effectively shouldering regulatory costs comparable to those of the industry's largest players.

There are also concerns that prolonged deterioration in profitability could erode service quality and chill investment in security and transaction-monitoring systems. Calls are growing for regulators to open institutional pathways that allow smaller exchanges to build competitive advantages beyond fee cuts. "One option would be to give smaller exchanges priority access to regulatory sandboxes and testbed programs, so they can pilot new services with financial firms," one industry insider said.