How much service fee should Web3 platforms charge?

Fees are not simply a tool for collecting commissions, but can also be a collaborative mechanism.

Original text: Monetizing decentralized platforms: How blockchain startups can set prices and fees

Authors: Gérard Cachon , Tolga Dizdarer , Gerry Tsoukalas

Compiled 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 price of Amazon Web Services (AWS); while Drife (a decentralized ride-hailing platform) promises to free drivers from Uber's 30% commission.

However, while the idea of ​​lowering costs for users is appealing, establishing reasonable fees and pricing standards requires platforms to strike a balance between the interests of multiple parties. The most successful decentralized marketplaces don't completely abandon fees; instead, they combine decentralized pricing with a thoughtful, value-added fee structure to achieve a balance between supply and demand.

Based on our research, this article will explore the role of pricing control and fee structure in platform economics and governance; why "zero-fee" models, no matter how well-intentioned, are ultimately doomed to fail; and how blockchain platforms should develop pricing strategies. We propose a new model, "affine pricing," based on transaction volume, which addresses the conflict between private information and market coordination.

Why Pricing and Fees Matter

The rise and fall of digital platforms hinges on their ability to manage two core levers: pricing control and fee structure (i.e., how much a platform charges buyers and sellers to use its services). These levers 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. Airbnb, in contrast, empowers hosts with independent pricing control, only guiding them moderately through algorithmic recommendations. Each model addresses its own key objectives: centralized pricing ensures efficient coordination in a large-scale market; decentralized pricing allows service providers to incorporate private information (such as costs, service quality, and differentiation) into their pricing strategies. Neither model is inherently superior; their effectiveness depends on the specific application scenario.

Fee structures impact more than just platform revenue; they also determine which players enter the market and how it operates. Apple's App Store charges a commission of up to 30%. This fee is used to screen high-quality app supply and fund platform infrastructure, and while it can anger app developers, it generally doesn't directly impact users. Conversely, Ticketmaster's high fees can drive artists and fans to other channels if alternatives are available. On the low-cost side, Facebook Marketplace's free listing service has fostered fraud, while several near-zero-fee NFT platforms have experienced a disruptive user experience due to the influx of low-quality NFTs.

The pattern is clear: fees that are too high will lead to supplier churn; fees that are too low will harm the quality of services/products.

Many blockchain projects adopt a zero-commission model, operating under the assumption that platforms can achieve better outcomes for both suppliers and users by forgoing their ability to extract value. However, this perspective overlooks the crucial role of well-designed fees in the effective functioning of the market: fees are more than simply a revenue-generating tool; they can also serve as a collaborative mechanism.

The trade-off between information and collaboration

The core tension in platform design lies in striking a balance between exploiting service providers’ private information and collaborating on market efficiency. Our research shows that the interaction between pricing controls and fee structures determines whether this tension is resolved or exacerbated.

While platforms can more easily achieve supply-side coordination and competitive coordination among service providers when they directly set prices, the inability to understand each provider's private costs (such as operating costs and marginal costs) often leads to mismatches between supply and demand: prices are too high for some users and too low for others. Platforms often charge commissions based on transaction value, and this inefficient pricing ultimately leads to profit loss.

If service providers were allowed to set their own prices, theoretically, their prices would reflect their true costs and service capabilities: low-cost providers could gain a competitive advantage by lowering prices, thereby achieving better supply-demand matching and market efficiency. However, a pricing model lacking coordination could backfire in two ways.

When products or services become highly homogeneous, a price war easily breaks out. High-cost suppliers are forced to exit the market, reducing supply. This comes at a time when demand is often on the rise, ultimately weakening the platform's ability to meet market demand. While a decrease in average prices may benefit consumers, it directly impacts the platform's commission-based revenue model.

When products or services need to be paired with each other to maximize their value, suppliers often set excessive prices. Although a large number of suppliers will flock to the platform, the high prices set by each will drive up the market average price and ultimately drive users away.

This isn't purely theoretical: In 2020, Uber tested Project Luigi 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 switch to other ride-hailing platforms. The program was terminated after only about a year.

Key Takeaway: The above results are not accidental; they represent the equilibrium outcome under standard commission contracts. Even optimizations to these contracts can still lead to this persistent market failure. Therefore, the core question is not "how much commission should the platform charge?" but "how to design a fee structure that ensures market efficiency for all participants."

How to solve the problem

Our research found that a targeted fee structure can cleverly address the market coordination problem while retaining the advantage of "pricing personalization." This affine fee model uses a "two-part fee" mechanism, where service providers pay the platform:

• A fixed base fee per transaction;
• Floating Fees: These can increase with trading volume (surcharges) or decrease with trading volume (discounted fees).

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

In this type of market, there are significant differences in supplier costs: some suppliers have naturally lower costs because they have more advanced technology, access to renewable energy or efficient cooling systems; other suppliers have higher costs but can provide premium services such as high reliability.

Under the traditional commission model, if the market is overly competitive, low-cost GPU suppliers will set aggressively low prices and occupy too large a market share, which will in turn trigger the market distortions mentioned above: some suppliers withdraw, resulting in limited transaction volume, while the average market price is lowered.

The optimal strategy for this scenario is a “volume surcharge”: the more customers a provider serves, the higher the fee they pay for each transaction.

This mechanism can form a "natural constraint" on aggressive low-cost suppliers, preventing them from occupying too much market share at unsustainably low prices, thereby maintaining market balance.

When market competition is moderate or insufficient, the optimal strategy shifts to "volume discount fees": the more customers a supplier serves, the lower the fee per transaction. This mechanism incentivizes suppliers to increase transaction volume by lowering prices, effectively improving market competitiveness while preventing prices from falling below sustainable levels.

For example, on decentralized social platforms, lower fees can be charged to "creators with higher user interactions", encouraging them to set more competitive prices for paid content and attract more user participation.

The beauty of the affine fee mechanism is that it eliminates the need for the platform to know the specific costs of each supplier. Instead, the fee structure creates positive incentives for suppliers to self-regulate based on their own private cost information. Low-cost suppliers can still gain an advantage by undercutting high-cost competitors, but the fee structure prevents them from monopolizing the market in a way that harms the health of the entire ecosystem.

We have demonstrated through mathematical simulations that a properly calibrated volume-based fee structure can enable the platform to achieve over 99% of the theoretically optimal market efficiency. Within this theoretical framework, this performance significantly outperforms both centralized pricing and zero-commission models. The resulting market will possess the following characteristics:

• Low-cost suppliers retain their competitive advantage but do not capture excessive market share;
• High-cost suppliers can maintain their participation by focusing on “market segments with differentiated services”;
• The overall market reaches a more balanced equilibrium with reasonable price differences;
• The platform achieves sustainable revenue while improving market functions.

Furthermore, analysis shows that the optimal fee structure depends on observable market characteristics, rather than each supplier's private cost information. When designing contracts, platforms can use observable signals like price and transaction volume as proxies for implicit costs. This allows suppliers to retain pricing power based on private information while addressing the inherent coordination failures of fully decentralized systems.

The future development path of blockchain projects

Many blockchain projects have adopted traditional commission models or zero-fee models, which has not only damaged their own financial sustainability but also reduced market efficiency.

Our research confirms that a well-designed fee structure is not antithetical to decentralization, but rather a core element in building a functioning decentralized market.

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