Proposal: Change the fee in the MTA pool from 0.3% to 1%

[tfns]

Proposal: Change the fee in the MTA pool from 0.3% to 1%

This proposal is expected to appear on Snapshot for voting on 2022-02-06T00:00:00Z. Make sure to stake your vBNT for voting before this date and time to participate in the DAO decision.

For this proposal to pass, it requires a 20% quorum and 66.7% supermajority.

TLDR

• This proposal seeks to increase the pool fees on the MTA pool from 0.3% to 1%.
• An increased pool fee will help siphon more profits from arbitrageurs to the protocol and most likely not affect volume therefore increasing APYs for the LPs in the pool.
• Increased APYs in the pool along with Impermanent Loss Protection will help gather interest from the mStable community to stake on Bancor and fill the remaining space in the pool.

Abstract

Deepest MTA pools on Ethereum are:

The MTA/WETH 80%/20% 0.49% (dynamic fee) Balancer v2 pool with $2,373,024 liquidity and 24hr APR of 15.24% (2.37% from swap fees, 12.87% from Liquidity Mining Rewards) [1].

The FEI/MTA 0.3% Uniswap v2 pool with $1,306,152 liquidity and 24hr APR of 1.60% [2].

The MTA/ETH 0.3% Uniswap v2 pool with $919,915 liquidity and 24hr APR of 14.72 [3].

The USDC/MTA 1% Uniswap v3 pool with $539.26k liquidity and 24hr APR of 115.74% [4].

The MTA 0.3% Bancor pool with $380,711 liquidity and 24hr APR of 0.48% [5].

The MTA/WETH 0.3% Sushiswap pool with $261,214.50 liquidity and 24hr APR of 2.77% [6].

The MTA/ETH 0.3% Uniswap v3 pool with $181.84k liquidity and 24hr APR of 7.19% [7].

Motivation

An analysis on the effect of the pool fees on pool volume conducted on the USDT/BNT pool showed that there is not enough evidence to support a linear relationship between them (Figure 1).

Figure 1 - USDT pool fee changes with market share before and after the Fee change. The 1000 and 2000 x axis values represent a 0.1% and 0.2% fee, respectively.

Mark’s comment on the TRAC pool fee experiment sheds some light into the topic.

It’s not a bad idea. Analysis of fee changes the DAO has made up to the present suggest we are still in the noise - in general, fee changes make zero difference to trade volumes, and understandably so. To a wide variety of users, the difference between a 0.2% and a 0.5% swap fee is essentially zero. More importantly, lower fees to drive higher volume is not commensurate with increased returns; Uniswap v3 has attained some truly remarkable volumes, but is currently running at a $20M loss. This i…

The TRAC experiment finished and resulting data can be found in the data analysis governance post [8], and showed that a 1-4% fee resulted in more fees accrued compared to 0.2% and 0.5%.

The MTA pool’s weekly volume and fees since the end of August (Figure 2 and Figure 3) show an abrupt decrease from the beginning of December 2021.

Figure 2 - Weekly MTA pool volume since the end of August 2021.

Figure 3 - Weekly MTA pool fees since the end of August 2021.

Figure 4 - MTA daily pool balance since the beginning of May 2021.

Figure 2/3 show a decrease in overall pool volume and fees since the end of November. The pool liquidity (Figure 4) has also been steadily falling since the end of the end of November 2021. A proposal to deploy MTA funds in Fei Protocol & Ondo Finance [9] meant 418,797.01 MTA was removed on the 10th of January 2022 [10].

The pool currently has space for 2,918,641 MTA to be staked single-sided.

Increasing the pool fee will help siphon more profits from arbitrageurs to the protocol, most likely not affect volume and therefore increase APYs for the LPs in the pool and protocol-earned fees. The Bancor TRAC pool is a perfect example of such a situation (Figure 5 to 7). Increasing the pool fee significantly increased APY for all LPs in the pool, and attracted more liquidity making the TRAC pool the dominant source of liquidity for TRAC on Ethereum (89.1%).

Figure 5 - Weekly TRAC pool fees since the end of August 2021

Figure 6 - TRAC pool Trade Volume Share over time since the beginning of Jan 2021.

Figure 7 - TRAC pool Liquidity Share over time since the beginning of Jan 2021.

Therefore, an increase in the MTA pool APY might attract more liquidity to the pool. If the pool space is occupied, the MTA pool on Bancor would have the deepest liquidity in any Ethereum DEX. A trading liquidity limit increase can then be considered.

These reasons justify an increase of the pool fee, and the pool performance will be closely observed if the proposal passes to understand if a consequent decrease in the pool fee is justified.

For

1. Increase the pool fee in the MTA pool from 0.3% to 1%.

Against

1. Keep the pool fee in the MTA pool at 0.3%.

[1] Balancer
[2] Uniswap Info
[3] Uniswap Info
[4] Uniswap Info
[5] Bancor: Converter 566 | Address 0xb2f71da1b104EFae99A4BD824B27B2B102Fe3ECB | Etherscan
[6] https://analytics.sushi.com/pairs/0x663242d053057f317a773d7c262b700616d0b9a0
[7] Uniswap Info
[8] TRAC Pool - Fee Changes
[9] ✔️ TDP 28 - Fei Protocol & Ondo Finance LaaS Opportunity - Proposals - mStable | Governance
[10] Ethereum Transaction Hash (Txhash) Details | Etherscan

[glenn]

I would like to see how a higher fee has affected pools where we don’t have a high share of the liquidity before moving forward with this change. The $PSP pool is a good example that was recently raised from .2% to .5% and where Sushiswap owns the majority of the liquidity (are we doing worse now than before?). You might also want to look at the $CEL pool which had a high fee before (1%) and was recently lowered to .2% because we don’t have the majority share of the liquidity (are we better off now than before?). While it is intuitive for us to raise fees on pools where we have market dominance, we should confirm whether higher fees on nondominant pools have led to higher fees for LPs.

@NIX in case he can provide some insight here. Thanks!

[eldude]

When you say we are doing worse than before, do you mean regarding our volume or fees generated?

[glenn]

Just adding some points that @NIX shared offline

This is the PSP pool fee rate change data:

	pool_symbol	fee_rate(%)	fee_rate_pool	lower_time	upper_time	time_deltas	volume	fees	avg_daily_volume	avg_daily_fees	Total_DEX_volume	marketshare(%)
0	PSPBNT	0.2	0.20% PSPBNT	2021-11-25 20:16:10+00:00	2022-01-06 18:28:05+00:00	41 days 22:11:55	$1,559,007	$3,118	$37,186	$74	$90,002,360	1.73218501
1	PSPBNT	0.5	0.50% PSPBNT	2022-01-06 18:28:05+00:00	2022-01-30 00:58:46+00:00	23 days 06:30:41	$853,239	$4,266	$36,665	$183	$16,362,353	5.214649291

Some thoughts about the above:

1. The liquidity in the PSP pool for the 41 days when the fee was set at .2% was in flux as the $PSP treasury was in the process of being staked:

You can see two large TX on 12/18 and 12/26. It is harder to discern the effect of fee changes when you have variables that are changing before and after the fee change (in this case, the liquidity in the pool by large amounts) and perhaps a better “lower_time” for the .2% “fee rate” would be 12/26. If we start at 12/26 and end at 1/6, we roughly have 12 days’ worth of data at a .2% fee rate and this might be enough for us to draw some conclusions.

Note: You can see that our market share was higher at a .5% fee rate and that’s most likely explained by us having a deeper pool during that entire time period when the $PSP treasury was staked in Bancor.

2. The other pool that provides useful information is the CEL pool:

	pool_symbol	fee_rate(%)	fee_rate_pool	lower_time	upper_time	time_deltas	volume	fees	avg_daily_volume	avg_daily_fees	Total_DEX_volume	marketshare(%)
0	CELBNT	1	1.00% CELBNT	2021-11-28 16:51:24+00:00	2021-12-29 16:51:24+00:00	31 days	$1,966,645	$19,666	$63,440	$634	$42,701,424	4.605572874
1	CELBNT	0.2	0.20% CELBNT	2021-12-29 16:51:24+00:00	2022-01-29 16:51:24+00:00	31 days	$2,123,230	$4,246	$68,491	$137	$55,550,508	3.822161406

This pool has been at about the same size (we tried to increase the trading liquidity but the proposal failed) since 11/28/21 and we don’t have the majority (Uni V3 does) of the liquidity for this token. Some thoughts:

1. Average volume is roughly the same before and after the fee change
2. Market share percentages before and after the fee change are relatively close
3. Fees revenue were higher at 1% for this token since our volume did not increase after lowering the fee (they stayed the same)
4. We should seek to increase the fee on this pool to .5% and then to 1% to see the effects.

I will support the increased fee change for this proposal and others so that we can get more data for pools where we do not have the majority of the $TKN liquidity. I think everyone can agree that charging higher fees on pools where we dominate has had positive results for LPs (we have seen successes with $TRAC, $wNXM, $LINK, $AMP and others) and it should not be a contention point.