What is Waterfall Pricing and How Does It Work in Crypto?

What is Waterfall Pricing?

Waterfall pricing is a pricing model that involves structuring the cost or fees for a product or service in multiple tiers or levels.

Under this model, customers are charged different prices depending on specific criteria or factors, such as quantity purchased, customer type, or other qualifying attributes.

The term “waterfall” refers to the concept of a cascading or descending flow, where customers progress from one pricing tier to another based on certain conditions.

Typically, as customers meet specific requirements or reach higher levels, they receive lower prices or discounts.

Waterfall pricing is often used to incentivize customers to increase their engagement or purchase larger quantities of a product or service.

By offering discounted prices or benefits to customers who meet certain criteria, businesses aim to encourage customer loyalty, higher sales volumes, or specific desired behaviors.

Waterfall Pricing on Centralized Crypto Exchanges

Waterfall pricing in the context of crypto refers to a pricing model used by some cryptocurrency exchanges or trading platforms.

In this model, the trading fees charged to users are structured in multiple tiers or levels based on their trading volume or other criteria.

Typically, the more a user trades or the higher their trading volume, the lower the fees they are charged.

This method is similar to casinos giving out free drinks to incentivize emotion in their customers.

This tiered fee structure encourages users to engage in higher trading volumes, as they can benefit from lower fees as they reach higher tiers.

The waterfall pricing model aims to incentivize active trading and increase the fee generation for the exchange.

Remember, exchanges want more volume because it increases their revenue.

Waterfall Pricing on Decentralized Exchanges

Waterfall pricing is not commonly used in decentralized exchanges (DEXs) as it is more prevalent in centralized exchanges.

Decentralized exchanges operate on blockchain technology and typically employ different pricing models compared to centralized exchanges.

In decentralized exchanges such as PulseX and UniSwap, trading fees are typically determined by smart contracts and protocols that facilitate the exchange of cryptocurrencies directly between users.

The fees charged on DEXs are more standardized compared to centralized exchanges.

They are usually based on a percentage of the transaction value or a fixed fee per trade.

Decentralized exchanges prioritize the principles of decentralization, transparency, and user empowerment.

Therefore, they typically do not implement complex tiered fee structures like waterfall pricing which are designed to extract as much value as possible.

The Bottom Line

Waterfall Pricing is a method designed to incentivize users to execute more trades.

A byproduct of this is more volume which equates to more fee generation for the platform.

Some centralized exchanges offer a pricing waterfall, while no decentralized exchange do.