If you’ve been involved with cryptocurrencies for any length of time, then you’ve probably heard of Bitfinex, one of the largest cryptocurrency exchanges in the world (ranked #6 on CoinGecko based on trading volume).
In December 2017, Bitfinex launched a spinoff exclusively for Ethereum and other ERC20 tokens. That exchange is Ethfinex. This guide will explain what Ethfinex is all about, how it works, and how to use it. It will also cover two of the platform’s own tokens, Nectar token and Ethfinex Voting Token.
Why Does Ethfinex Exist?
The first question you might be asking is, why does Ethfinex even exist? Considering the popularity and success of Bitfinex, it seems unnecessary for it to launch its own Ethereum focused spinoff.
Well, the answer to that question is that Ethfinex is a hybrid decentralized exchange while Bitfinex is a centralized one. As mentioned in the AirSwap guide, decentralized exchanges do not hold custodial control of trader’s funds, but centralized ones do. According to the Ethfinex whitepaper, in the aftermath of the Bitfinex hack of 2016, the Bitfinex team realized the opportunity that decentralized exchanges and internal platform tokens created.
So far, Ethfinex appears to be a success. Despite being a new exchange, it already ranks 22nd on the list of exchanges by trading volume – quite impressive.
Ethfinex’s Value Proposition: More than Just a Decentralized Exchange
Ethfinex bills itself as the “home of digital tokens trading & discussion”. Its white paper states its ambitious goal of being “the world’s most customer-centric and liquid digital asset exchange platform.” Clearly, it intends to offer more to its users than being yet another ERC20 decentralized exchange. To that end, Ethfinex has three components that set it apart from the pack.
Hybrid Decentralized Model: As mentioned above, Ethfinex is not a fully decentralized exchange, but rather a hybrid one. Recognizing that a pure decentralized model is not suitable for more sophisticated traders with large trading volumes, Ethfinex opts for a hybrid model that is at its core currently centralized but allows other decentralized exchanges to ‘plug in’ to Ethfinex and use its liquidity pool. The diagram below shows the decentralized exchange model.
Note that at the time of this writing, Ethfinex is still primarily centralized. In order to use decentralized trading with Ethfinex, users will have to go through other decentralized exchanges that connect to Ethfinex’s order book and liquidity pool. Thus far, Ethfinex has partnered with the 0x protocol which is an open, permissionless protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain. However this option is currently only available for orders over $200.
Ethfinex does intend to eventually transition to a full decentralized model. However its white paper seems to indicate that this will only happen once the scalability issues of the Ethereum network itself are fixed. Hence, full decentralization of Ethfinex should be viewed realistically on a long term basis; don’t expect full decentralization anytime soon.
Community and Knowledge Hub for ERC20 Tokens: Another big reason for the creation of Ethfinex is ICOs and ERC20 tokens. The vast majority of ICO tokens out there are (at least in the beginning) ERC20 tokens. Bitfinex considers these tokens a separate market into itself, and Ethfinex is designed to cater to that market. And because such tokens rely a lot on community participation with exchange listing being a major milestone, Ethfinex has an active discussion section for the community to talk about relevant news and potential token listings.
Internal Loyalty Tokens: After internal tokens were used to pay back Bitfinex users following the hack, the Bitfinex team realized the potential of internal tokens on an exchange platform. Ethfinex thus has the Nectar token (NEC). The NEC token is purely a reward token and are given for free to users who are part of Ethfinex’s market maker reward scheme. The second internal token on the Ethfinex platform is known as the Ethfinex Voting Token (EVT) and this is basically a mechanism for the community to vote on new token listings. The functions of both these tokens will be expanded in the below sections.
Setting Up an Ethfinex Account
Now, let’s move into setting up an Ethfinex account. From the main website, just click Sign Up at the top right of the screen and you’re ready to proceed.
After you create your account, you’ll have to go through the standard verification via email link. Once you verify your account and log in, you’ll be brought to the main trading interface which looks like this.
Now, let’s fund the Ethfinex account. You have the option of funding your account in Bitcoin, Ethereum, or any of the other ERC20 tokens listed on Ethfinex. Fiat deposit options, either USD or Euro are also available and will be converted into Tether on the platform. However, please note that in order to deposit Tether you will need to undergo additional verification on your account for compliance with Anti-Money Laundering and Counter-Terrorism Financing laws. According to Ethfinex, this verification process may take up to 5 weeks.
For the purposes of this guide, I will be depositing Ethereum. Please note that unlike most platforms, Ethfinex charges a small deposit fee on all deposits under a USD1,000 equivalent. The reason given is that small deposits create strain on the Ethereum nodes and slows down the system. Hence, Ethfinex recommends that you batch your small deposits together instead of sending them piecemeal.
The fee amount for what Ethfinex calls ‘small deposits’ are listed on this page here, and vary from token to token. In the case of ETH, each small deposit has a fee of 0.0027 ETH, which translates to about USD1.20 as of this writing. Note that the same fee amount is applied for all withdrawals; regardless of size.
Once you select your deposit currency, you will be brought to the following page which lists out the three types of wallets available on Ethfinex – exchange wallets, margin wallets, and funding wallets.
Before we proceed any further, let’s take a look at the three types of wallets available on Ethfinex and the differences between them.
Exchange Wallets, Margin Wallets, and Funding Wallets – What are They?
Each type of Ethfinex wallet corresponds to the main types of trading you can do on the platform. An exchange wallet is for your basic cryptocurrency trading; buying and selling. This is the most popular type of wallet and for this beginner’s guide, the one that we will be focusing on the most.
Margin wallets are for margin trading, also known as leveraged trading. Ethfinex allows you to trade up to a 3.3x margin. This means that if you have USD100 worth of funds, you could make trades up to a maximum of USD330. You could potentially make bigger gains on a smaller amount; but also bigger losses. Note that this feature is not available for all cryptocurrency pairs.
Should the value of your margin position fall below the margin call threshold (22.5% in Ethfinex’s case), you will receive a margin call. If it falls below 15%, your position will be forcibly liquidated. Ethfinex’s platform will show you an estimated liquidation price; if the asset hits this price your position will be liquidated (assuming no equity top ups) and the minimum equity required to keep the open margin position.
In a standard stock brokerage, margin trading is funded by the brokerage itself; you borrow money from the brokerage to make leveraged trades. In the case of Ethfinex however, margin trading is funded by other traders on the platform through margin funding (note that Ethfinex itself will be the ‘lender of last reserve’ should funding run out). This is what the funding wallets are for.
Margin funding allows you to fund other traders’ margin trades. This is basically a form of peer-to-peer financing and in return you will receive a daily interest rate. Because the interest rate is typically much higher than you can get through ‘traditional’ financial instruments and the risk is not that high (due to forced liquidation below a certain threshold as explained above), Ethfinex takes a 15% cut of the interest paid out to margin lenders.
Again, as this is a beginner’s guide, we will not be going much into these kind of advanced features. These features were first implemented on Bitfinex and is a big selling point for the platform that attracts many experienced traders to it.
Making Simple Deposits, Trades, and Withdrawals on Ethfinex
Now let’s make some simple deposits, trades, and withdrawals on the platform; which is all that most beginners need to know anyway. The deposit process is simple. Just generate an address for the relevant wallet and send in the ETH (or other tokens) from your wallet. In this case, I sent it from my MetaMask wallet.
After about 10 minutes, the funds showed up in my Ethfinex account and it’s time to start trading. Note that the other two columns are for the margin wallet and the funding wallet balances. Transferring funds from one wallet to the other is also a straightforward and simple process.
Now let’s try to buy a simple token using my ETH. With my measly USD20 in ETH in my Ethfinex wallet, I’m going to buy 5 VeChain tokens, which at the time of this writing is worth about USD10. I’m going to choose the simplest order type which is a market buy.
After I clicked Exchange Buy, an instant popup notification informed me that my order had been fully executed.
My balances were also updated to reflect the purchased VEN.
Selling the VEN back to ETH is also equally simple.
For the final step, let’s withdraw my ETH from Ethfinex back into my MetaMask wallet. After clicking the Withdraw button at the top right of the page, you’ll be brought to a new page similar to the Deposit screen, where you can select which token you want to withdraw. Note that if you do not have two factor authentication enabled (more on this in the ‘Is Ethfinex Safe’ section below), a popup will appear to inform you that without enabling it, withdrawals will take considerably longer to process.
From the withdrawal page, simply fill out the relevant information and you’re good to go. Except there’s a slight problem because Ethfinex has a minimum withdrawal amount of USD250 equivalent.
Important Information - Ethfinex’s minimum withdrawal amount is USD250 or its equivalent.
If you’re thinking about trading with Ethfinex it is important that you take note of this because this is NOT stated upfront by the platform. I only found out about it literally as I took the above screenshot. While this kind of withdrawal limit makes sense, particularly if you’re aiming for larger trades on your platform, this is really the kind of thing that should clearly be stated upfront. Fortunately I only transferred a token amount of ETH to the platform.
However, the Ethfinex team was kind enough to inform me that each user is actually allowed one small withdrawal (meaning under USD250) per week. That said, you should know that this feature is not obvious from the interface and most people would probably not know about it. Here’s how to get your one small withdrawal per week.
First, click on the ‘Help’ button that appears when you enter a withdrawal amount as per the below.
You will then see the following popup.
From there just, proceed with the withdrawal as normal.
Ethfinex Fees Model
In addition to the deposit and withdrawal fees mentioned above, Ethfinex also charges fees on maker-taker fee model. Ethfinex charges both the market makers and the market takers fees, although market makers can receive fee kickbacks (in the form of NEC tokens) via its loyalty program.
Here’s Ethfinex’s current fee schedule.
Ethfinex Customer Support
In terms of customer support, Ethfinex offers a support team which is available 24/7 to deal with any issues. Members can also open tickets by using the Support Center. Another option to reach the customer support team is via Ethfinex’s social channels such as Twitter and Telegram. The site also keeps a comprehensive Knowledge Base section that new users should certainly read.
The Nectar Token – What Is It For?
The Nectar token, or NEC, is Ethfinex’s loyalty token. 50% of all fees paid to Ethfinex go into the NEC’s smart contract every 30 days. Further, holders of NEC are entitled to some governance rights and can also trade it on secondary markets.
Newly issued NEC tokens are only distributed to market makers who are registered with Ethfinex’s market maker loyalty program. To register for said program, you must be a verified user (and not from the US as it may be considered a security). NEC is paid out to members in proportion to monthly total trading volume.
However, if you just want to own the token, you don’t have to be a market maker; you can easily buy them on the secondary market as seen below.
NEC holders also get to vote on new tokens to be listed on Ethfinex. Every two weeks, 14 tokens are put up to a vote with the top three chosen for listing. Voting is done, as previously mentioned, using Ethereum Voting Tokens. During the voting period, each NEC token holder is entitled to an EVT amount equivalent to their NEC amount (1:1 basis). In addition, large NEC token holders, defined as 5% or more of all NEC issued in a certain period, will be entitled to elect a representative to Ethfinex’s board.
Since it began trading on Apr 1 2018, NEC has reached a market cap of about USD180 million (using the full 50% of the total token supply of 1 billion), which is pretty impressive. Do note however that of the 50% circulating supply, about 60% of this amount is locked up by Bitfinex as an investor in Ethfinex. Hence, the true trading supply of NEC presently is about 190 million tokens which is worth approximately USD70 million.
If you’re interested in learning more about the Nectar token, check out its community site at Nectar.community.
Ethfinex Order Types
Just like Bitfinex, Ethfinex is a platform that is primarily targeted toward more sophisticated traders. This can be seen in its margin trading and margin funding capabilities, as well as the number of order types. While the examples above depicted a simple market order where an asset was bought or sold at market price, there are actually 10 different types of orders available. They are: market, limit, stop, stop-limit, trailing stop, one cancels other, fill or kill, scaled, hidden, and post-only limit.
For more on the different types of orders, refer to Ethfinex’s order FAQ page here.
Other than advanced order types, Ethfinex also gives traders using technical analysis a whole range of charting options from Bollinger bands to vortex indicators.
Is Ethfinex Safe?
It is true that Ethfinex’s parent, Bitfinex was subject to a massive hack in 2016. But since then, it appears to have learned and improved from its mistake and emerged stronger in the aftermath. The lessons from its mistake have been carried over to Ethfinex, and hence many robust security measures have been put in place.
Here is a list of the various security options you have when you go to your security settings page. It comes handy with an easy to reference check list to show you exactly how many of the security options you have enabled.
What I liked was the option to audit your logins and detect changes in IP addresses in the session settings.
Another important security option I liked was the ability to only allow withdrawals to specific addresses, monitor it by IP addresses, and even add a third secret phrase authentication layer prior to withdrawals. There is also a tamper proof confirmation number that you have to key in after the two factor authentication in order to process your withdrawal. In addition, if you forget your password and need to reset it, Ethfinex will impose a 5 day withdrawal ban on your account; inconvenient, but a good security measure.
For more on ideal security settings, Ethfinex has a Security Best Practices page on its FAQ that should serve as a handy reference.
On Ethfinex’s part, the platform stores most of its custodial funds in cold wallets. According to its website, a mere 0.5% of crypto assets on the platform are stored in hot wallets and that the cold wallets require manual action by several members of its management team to access. That’s the reason why large withdrawals may take some time to process.
Conclusion: Ethfinex is a Great Trading Platform for More Advanced Traders
With a myriad of advanced trading features, high minimum withdrawal amounts, and a loyalty program for market makers, Ethfinex does not pretend to be targeted toward beginner traders. However, many of these features are optional and beginners need not concern themselves with many of those features, at least initially.
As such, if you are a beginner, you should not have too much of a problem in navigating Ethfinex for conducting simple trades. However because of fees on both deposits and withdrawals, Ethfinex is not the best platform for very small time traders, beginner or otherwise. Finally, if you’re interested in investing in the Nectar token, Ethfinex is still the only place that you can get it at the moment, whether directly through the loyalty program or through the secondary market.