Bancor v2.1 has gone live, and with that we have the industry’s first single-sided AMM, equipped with full protection from impermanent loss. Going forward, our earnings potential as liquidity providers will be dependent on trading volume, and we must therefore step up our efforts to attract traders away from competitor DEXs over the coming weeks.
Traders are of course attracted by low trading fees. Whereas Uniswap offers a standardized trading fee of 0.3% for a single trade between any two listed TKNs, trading fees on Bancor are currently set by the pool owner of a BNT/TKN pool. As such, we have seen trading fees as high as 1.5% being set by pool owners. Moreover, given that both exchanges perform 2 swaps in order to execute a swap order between any two TKNs, traders must in fact pay 2 trading fees - one for each paired pool - when executing a single swap. Let’s compare current trading fees on Uniswap and Bancor for a trade between USDT and REN:
Uniswap trading fee:
USDT/ETH pool trading fee: 0.3%
ETH/REN pool trading fee: 0.3%
Total trading fee incurred: 0.6%
Bancor trading fees:
USDT/BNT pool trading fee: 1.5%
BNT/REN pool trading fee: 0.2%
Total trading fee incurred: 1.7%
As we can see, the absence of standardized trading fees in Bancor risks rendering it a less attractive prospect for traders than Uniswap, notwithstanding present and future liquidity depths on the respective platforms.
We therefore propose a motion to standardize trading fees in all Bancor pools at a rate of 0.15%. Given that the Bancor exchange performs 2 swaps in order to execute a swap order between any two TKNs, the 0.15% rate would ensure that the total trading fee incurred by traders on Bancor does not exceed 0.3%, thus bettering the (0.3% x 2) trading fee offered by Uniswap.
We understand that lower trading fees may appear to be less attractive to prospective liquidity providers in the short-term, empirical evidence suggests that the opposite is in fact true. This section of the proposal will provide the empirical analysis, pending input from the Economic and Quantitative Consultant.
An alternative proposal to standardize trading fees at 0.1% for an initial period of 90 days, before allowing individual pool owners to adjust them upwards to a maximum of 0.15% if they so wish, is also being considered.
Comments very welcome.