Voyager Digital bets on fee-free trades

When discount brokerage Charles Schwab announced that it was going commission-free on October 2, it was a vindication for one cryptocurrency exchange which has been using that very model since February.

Rivals E-Trade and TD Ameritrade quickly followed Schwab’s lead. It marked a huge change in how small investors can participate in the market. 

Voyager Digital was launched with the goal of radically changing the cryptocurrency exchange market, CEO Steve Ehrlich told Modern Consensus. It’s a business he knows well from the traditional finance side, having headed up E-Trade Professional Trading before founding Lightspeed Financial.

Ehlrich said he and his partner, Uber founding CTO Oscar Salazar, believe the writing is on the wall for fee-based exchange models like Coinbase. The future, he said, is in embracing small, retail clients, not just large institutional investors.

That argument got another boost on October 7, when the major cryptocurrency exchange was hit with a wave of criticism for more than tripling the cost of sub-$10,000 trades for small investors while cutting commissions on trades above $50,000. Coinbase fees dropped progressively, hitting zero for market makers (generally sellers) at $50 million

Of course, saying the commission changes were implemented “in order to respond to client needs,” didn’t help Coinbase’s case.

Customer interest

Another way Voyager is trying to entice small investors is by offering interest on bitcoin balances kept in customers trading accounts. 

On November 1, the exchange kicked off the Voyager Interest Program (VIP), paying 3% annual interest on Bitcoin balances that average at least 0.01 BTC. Interest is paid monthly, based on average monthly balances.

VIP began about three weeks after the exchange announced that cryptocurrency lending firm Celsius Network would manage part of its assets. Celsius currently pays 4.4% on bitcoin deposits, but does not offer exchange services. 

Voyager is also offering 5% on ethos tokens, which it plans to rename the Voyager Token (VGX) in the near future. Voyager bought VGX issuer Ethos on October 2. It incorporated the Ethos wallet and may use the company’s blockchain for future financial offerings.

In October, Coinbase began offering 1.25% interest on its USD Coin (USDC) stablecoin. It also allows institutional customers of its Coinbase Custody arm to earn income via staking—putting up funds for proof-of-staking blockchains. 

Pitching free and easy

Ehlrich said he and Salazar began setting their sights on the cryptocurrency market after casting around for businesses to disrupt. They settled on an exchange because “customers in the crypto space needed a broker to find them best execution across the globe.” 

With a “very fragmented market across multiple [crypto]currencies,” they felt “customers themselves were not positioned well to trade directly on exchanges,” he said. “Try[ing] to navigate multiple exchanges is very difficult. They just want to go to one place and [say], take care of this for me.”

Instead of charging a fee for trades, Voyager makes its money by acting as a broker and taking a percentage of the spread, or the gap between the selling and buying price. Basically, Voyager looks at many different exchanges and charges the customers the average price of the cryptocurrency being traded. It then makes the trade on the exchange with the best price.

“Incumbents like Coinbase are taking a different approach and appear to be pivoting their business more towards larger institutional customers than retail customers,” added Ehrlich. 

That’s a problem, said Ehrlich, “because crypto is different from every other asset class—it was born from retail customers. Option trading was born from institutional customers, equity trading was born from institutional customers.”

That retail segment is “the loudest and most important today as we try to drive crypto across the globe,” he said. “We think that customers, whether they’re going to trade $5,000 a month, $1,000 a month or $1 million a month, deserve the same best execution, the same pricing across the board.”

Which isn’t to say Voyager is ignoring the large institutional investor. In September, it announced that a new division, Voyager Institutional, was scheduled to launch towards the end of the year.

One thing setting Voyager apart from many exchanges is that it’s a publicly traded company in the traditional equity markets and it didn’t raise money holding an initial coin offering (ICO). In a deal valued at C$60 million earlier this year, Voyager conducted a reverse merger with the shell corporation of a small, shuttered Canadian mineral company. That gave Voyager Digital room to invest, Ehrlich added. Its market cap is down to C$41million, according to Bloomberg.