Proposal: Change the fee in the REQ pool from 0.2% to 1.0%

[tfns]

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 REQ pool from 0.2% to 1%.
• The REQ pool on Bancor has the deepest liquidity in any DEX.
• 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 Request Network community to stake on Bancor and fill the remaining space in the pool.

Abstract

The REQ pools with deepest liquidity in Ethereum DEXes are:

• The REQ/ETH pool on Uniswap v2 with $2,029,860 liquidity, and an extrapolated APY from the fees accrued in the past 24 hours of 6.40% [1].

• The REQ 0.2% pool on Bancor with $3,214,362 liquidity, and an extrapolated APY from the fees accrued in the past 24 hours of 0.20% [2].

Motivation

This pool shares some similarities to the TRAC pool in which we have the largest amount of liquidity for a specific token.

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, and showed that a 1-4% fee resulted in more fees accrued compared to 0.2% and 0.5%.

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 2 to 4). 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 2 - Weekly TRAC pool fees since the end of August 2021

Figure 3 - TRAC pool Trade Volume Share over time since the beginning of Jan 2021.

Figure 4 - TRAC pool Liquidity Share over time since the beginning of Jan 2021.

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

For

1. Increase the pool fee in the REQ pool from 0.2% to 1%.

Against

1. Keep the pool fee in the REQ pool at 0.2%.

[1] Uniswap Info

[2] Bancor: Converter 702 | Address 0x483F65300b6Cb6f211aAB39229d494E59Fe24E66 | Etherscan e