Designing a reasonable fee structure is not contrary to decentralization; rather, it is a core element in building a functional decentralized market.

Written by: Gérard Cachon, Tolga Dizdarer, Gerry Tsoukalas

Translated by: Luffy, Foresight News

Web3 aims to reduce reliance on intermediaries, thereby lowering service fees and giving users greater control over their data and assets. For example, Gensyn (a decentralized AI computing platform) offers AI computing services at a fraction of the cost of Amazon Web Services (AWS); Drife (a decentralized ride-hailing platform) promises to help drivers escape Uber's commission exploitation of up to 30%.

However, despite the appealing idea of lowering costs for users, establishing reasonable fees and pricing standards requires platforms to find a balance among multiple interests. The most successful decentralized markets do not completely abandon fees; instead, they combine "decentralized pricing" with a thoughtfully designed fee structure that can create added value, thus achieving a balance between supply and demand.

Based on our research, this article will elaborate on the following: the role of pricing control and fee structure in platform economics and governance; why the "zero-fee" model, regardless of the designer's good intentions, is destined to fail; and how blockchain platforms should formulate pricing strategies. We propose a new model of "affine pricing" based on transaction volume, which can resolve the conflict between private information and market coordination.

The Importance of Pricing and Fees

The rise and fall of digital platforms depend on their ability to manage two core levers: pricing control and fee structure (i.e., how much the platform charges both buyers and sellers using its services). These two are not only revenue-generating tools but also market design tools that shape user behavior and determine market outcomes.

Pricing control determines "who sets the transaction price." For example, Uber sets fares through a centralized algorithm to optimize supply-demand balance and pricing stability; in contrast, Airbnb gives hosts the autonomy to set prices, only providing algorithmic suggestions for moderate guidance. Each model has its focus: centralized pricing ensures coordination efficiency in large-scale markets; decentralized pricing allows service providers to incorporate private information (such as costs, service quality, differentiation advantages, etc.) into their pricing strategies. There is no absolute superiority between the two models; their effectiveness depends on the specific application scenario.

The impact of fee structure extends beyond platform revenue; it also determines which participants will enter the market and how the market operates. The Apple App Store charges a maximum commission of 30%, which is used to filter quality app supply and fund platform infrastructure, but may also displease app developers without directly affecting users; conversely, high fees on ticketing platform Ticketmaster, if alternatives exist, can drive artists and fans to other channels. From the low-fee perspective, Facebook Marketplace's free product listing service has bred scam issues; several near-zero-fee NFT platforms have led to a chaotic user experience due to an influx of low-quality NFTs.

The pattern is clear: excessively high fees can lead to a loss of supply; excessively low fees can harm service/product quality.

Many blockchain projects adopt a zero-commission model, reasoning that by forgoing value extraction, they can provide better outcomes for suppliers and users. However, this view overlooks the critical role of "reasonably designed fees" in the effective operation of markets: fees are not merely a tool for extraction but can also serve as a coordination mechanism.

The Trade-off Between Information and Coordination

The core contradiction in platform design is how to balance "utilizing service providers' private information" with "coordinating the market for efficiency." Our research indicates that the interaction between pricing control and fee structure determines whether this contradiction is resolved or exacerbated.

When a platform directly sets prices, it can more easily achieve supply-side coordination and competition among service providers, but because it cannot grasp each provider's private costs (such as operational costs, marginal costs, etc.), pricing often leads to mismatches for both supply and demand: prices may be too high for some users and too low for some suppliers. Platforms typically charge commissions based on transaction amounts, and this inefficient pricing ultimately leads to profit loss.

If service providers set prices autonomously, theoretically, their prices can reflect true costs and service capabilities: low-cost suppliers can gain a competitive advantage by lowering prices, thus achieving better supply-demand matching and market efficiency. However, a lack of coordinated pricing models can backfire in two ways.

When products or services are highly homogeneous, it can trigger a price war. High-cost suppliers are forced out of the market, leading to a decrease in supply; meanwhile, demand is often on the rise, ultimately weakening the platform's ability to meet market demand. While the average price may decrease, benefiting consumers, it directly impacts the platform's revenue model based on commissions.

When products or services need to complement each other to realize maximum value, suppliers often set prices too high. Although many suppliers may flood the platform, their individually set high prices will raise the market average price, ultimately driving users away.

This is not merely a theoretical deduction: in 2020, Uber tested the "Luigi Plan" in California, allowing drivers to set their own prices. The results showed that the fares set by drivers were generally too high, causing users to turn to other ride-hailing platforms, and the plan was terminated after about a year.

Key Conclusion: The above results are not coincidental but are equilibrium outcomes under standard commission contracts. Even optimizing commission contracts may still lead to such persistent market failures. Therefore, the core issue is not "how much commission should the platform charge," but "how to design a fee structure that ensures the market is effective for all participants."

How to Solve the Problem

Our research finds that a targeted fee structure can cleverly resolve market coordination issues while retaining the advantages of "personalized pricing." This affine fee model employs a "two-part tariff" mechanism, where service providers must pay the platform:

• A fixed base fee per transaction;

• A variable fee: which increases with transaction volume (surcharge) or decreases with transaction volume (discount).

This model will have differentiated impacts on suppliers based on their costs and market positioning.

In such markets, suppliers' costs vary significantly: some suppliers have lower costs due to advanced technology, access to renewable energy, or efficient cooling systems; others may have higher costs but can provide premium services such as high reliability.

Under traditional commission models, if market competition is excessive, low-cost GPU suppliers may set aggressively low prices, capturing too large a market share, leading to the market distortions mentioned earlier: some suppliers exit, resulting in limited transaction volume, while the market average price is driven down.

For this scenario, the optimal strategy is a "transaction volume surcharge": the more customers a supplier serves, the higher the fee per transaction.

This mechanism can create a "natural constraint" on aggressive low-cost suppliers, preventing them from capturing too much market share at unsustainable low prices, thus maintaining market balance.

When market competition is moderate or insufficient, the optimal strategy shifts to a "transaction volume discount": the more customers a supplier serves, the lower the fee per transaction. This mechanism encourages suppliers to expand transaction volume through price reductions while effectively enhancing market competitiveness without dropping prices below sustainable levels.

For example, in a decentralized social platform, lower fees could be charged to "creators with higher user interaction," encouraging them to set more competitive prices for paid content while attracting more user participation.

The brilliance of the affine fee mechanism lies in that it does not require the platform to grasp each supplier's specific costs; the fee structure creates positive incentives, guiding suppliers to self-adjust based on their private cost information. Low-cost suppliers can still gain advantages by pricing below high-cost competitors, but the fee structure will prevent them from monopolizing the market in a way that harms the overall ecosystem's health.

We validated through mathematical simulations that a reasonably calibrated "transaction volume-based fee structure" can enable the platform to achieve over 99% of theoretical optimal market efficiency. In the theoretical framework, it outperforms both "centralized pricing" and "zero-commission" models. The resulting market will have the following characteristics:

• Low-cost suppliers retain competitive advantages but do not capture excessive market share;

• High-cost suppliers can continue to participate by focusing on "niche markets for differentiated services";

• The overall market reaches a more balanced equilibrium state, with reasonable price differences;

• The platform achieves sustainable revenue while enhancing market functionality.

Furthermore, analysis indicates that the optimal fee structure depends on "observable market characteristics," rather than each supplier's "private cost information." When designing contracts, the platform can use observable signals such as "price" and "transaction volume" as proxy indicators for "hidden costs," allowing suppliers to retain pricing power based on private information while addressing the inherent coordination failures in fully decentralized systems.

Future Development Path of Blockchain Projects

Many blockchain projects, by adopting traditional commission models or zero-fee models, have both harmed their financial sustainability and reduced market efficiency.

Our research confirms that designing a reasonable fee structure is not contrary to decentralization; rather, it is a core element in building a functional decentralized market.

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