The illusion of "zero fees": Lighter has taken away the costs with high latency

Original Title: Lighter's "0% Fees" Are Actually 5-10x More Expensive Than Other Exchanges

Original Author: @PerpetualCow, Crypto KOL

Original Compiler: AididiaoJP, Foresight News

There is a truth in the marketplace: if a product is free, then you are the product.

Lighter DEX is promoting "zero fees" to retail traders. It sounds too good to be true, and indeed it is.

However, what Lighter does not highlight in bold letters is the latency structure behind these "free" trades.

Lighter offers two types of accounts: once you understand how latency works, you'll find that 0% fees are actually the most expensive tier on the platform.

That 200-300 milliseconds of latency is the entirety of their business model.

What Does 300 Milliseconds Really Mean?

The average person blinks once every 100-150 milliseconds. In the time it takes you to blink twice, faster traders have already captured price fluctuations, adjusted their positions, and traded against you.

The crypto market is highly volatile, with typical volatility levels (annualized 50-80%) causing prices to fluctuate about 0.5 to 1 basis point per second.

In other words, within 300 milliseconds, random market fluctuations alone can cause prices to move an average of 0.15-0.30 basis points.

The True Cost of "Free"

If we quantify it:

Academic research on adverse selection costs (Glosten & Milgrom, Kyle's Lambda, etc.) indicates that informed traders typically have an advantage of 2-5 times the magnitude of price random fluctuations.

If the random slippage within 300 milliseconds is about 0.2 basis points, then adverse selection would add an additional 0.4-1.0 basis points.

For active traders and market makers, the actual costs are approximately as follows:

· Actual cost for standard accounts: 6-12 basis points per trade (0.06%-0.12%)

· Actual cost for premium accounts: 0.2-2 basis points per trade (0.002%-0.02%)

The cost of "free" accounts is 5-10 times higher than that of paid accounts.

Zero fees is just a marketing number; the real cost is hidden in the latency.

Premium Accounts Are Actually More Cost-Effective, No Doubt

In any case, standard accounts (0% fees) are not the better choice.

This applies to small retail traders, large traders, scalpers, swing traders, and even passive investors. Especially for market makers, it is not the case for anyone.

"I’m just a small retail trader; I don’t need a premium structure."

Wrong.

Small retail traders are even less able to absorb slippage. If you trade with $1,000 and lose 10 basis points per trade, that means you lose $1 each time. Trade 50 times, and 5% of your account quietly disappears.

"I don’t trade frequently; latency doesn’t affect me."

Also wrong.

If you don’t trade frequently, then the fees for a premium account are negligible.

But even in just a few trades, the execution price you receive is still worse. Since the cost of avoiding such losses is nearly zero, why accept any disadvantage?

Just upgrade to a premium account directly.

This Model Has Precedents

Traditional financial markets have long seen this tactic, known as payment for order flow.

@RobinhoodApp attracted retail traders with "free trading," then routed orders to market makers, allowing them to profit by trading against uninformed retail orders, thus popularizing this model.

Lighter's model is structurally similar. Standard accounts do not receive free trades; they receive slower trades. This latency is converted into profit by faster participants.

The trading platform does not need to charge you fees because you are actually paying with execution quality.

What Lighter Does Right and Wrong

Lighter does not hide latency data; after all, it is written in the documentation.

But transparency does not equal clarity.

Highlighting "0% fees" in the title while burying "300 milliseconds latency" in the fine print is a strategy aimed at registration conversion rates rather than user understanding.

Most retail traders do not understand the implications of latency and are unaware of what adverse selection is, so they cannot calculate the equivalent actual costs.

And Lighter knows this.

Premium accounts are more cost-effective than standard accounts with "zero fees" in every aspect; this is beyond debate.