In attempting to make predictions about how an exchange will behave, it is important to understand how it works.
Fulfillment Process - Coinbase
Coinbase operates by first using a maker-taker model. Fees for this model were active as of March, 31 2015. Essentially, this takes advantage of their being a pool of Bitcoin to access already within Coinbase. An example of this model is featured on Coinbase’s website:
“There is an existing SELL order for 5 BTC at 100 USD on the order book. You enter a BUY order for 7 BTC at 100 USD. 5 BTC of your BUY order are immediately matched and you are charged the taker fee ($1.25 total) because you are taking liquidity from the order book. The remaining 2 BTC of your order are now sitting on the BID side of the order book. A SELL order for 2 BTC at 100 USD arrives and matches against your 2 BTC BUY order. In this case you provided liquidity and are not charged any fees.”
What this means is that Coinbase primarily relies on the transactions submitted by users to execute the flow of Bitcoin. Users are really buying and selling from each other. Since this is occurring, it explains why the “taint” for the coin is much higher. The need for keeping anonymity between addresses is not entirely necessary because Coinbase is not holding all the Bitcoin in a single reserve. Rather, Coinbase sends from one individual’s address to another.
This can be advantageous to Coinbase since it does not need to worry about a mixing service and since it has reached a critical mass, transactions are still being filled at a decent rate. The disadvantage with this is for frequent traders. Coinbase waits for the bank to clear a transaction before issuing a new one. That process takes some time. Further, as with the example above, if Coinbase much reach multiple user addresses before fulfilling a request, that too takes time.
Fulfillment Process - Circle
The way Circle works is a bit different than Coinbase. Rather than moving Bitcoin between users, Cirlce actually advertises the fact that they have a reserve. So, if were were to use the same example, the Circle transaction would look something like this:
There is an existing SELL order for 5 BTC at 100 USD on the order book. You enter a BUY order for 7 BTC at 100 USD. 5 BTC of your BUY order are immediately matched from the Circle reserve and you are not charged with any bank or transaction fees. The remaining 2 BTC of your order are now sitting on the BID side of the order book. A request for more BTC is submit by Circle and once executed and the reserve is replenished, the BUY of 2 additional BTC is completed.
The value proposition for Circle is that transactions are executed immediately. This is advantageous for users since they can see their accounts updated in almost real-time. What is difficult is that Circle has a point of vulnerability by holding a reserve. They must use something similar to a mixing service which is why the “taint” for Bitcoins from their addresses is so low. Also, keeping track of the reserve is a bit harder for Circle since they must know when to replenish the reserve to prevent it from running out (as outlined in the example above).