Proposal: Change the fee in the SNX pool from 0.2% to 1%

[tfns]

Proposal: Change the fee in the SNX pool from 0.2% to 1%

This proposal is expected to appear on Snapshot for voting on 2022-02-13T00:00:00Z. 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 SNX pool from 0.2% to 1%.
• The SNX pool on Bancor has the second deepest liquidity in a 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 Synthetix community to stake on Bancor and fill the remaining space in the pool.

Abstract

Deepest SNX pools on Ethereum are:

The SNX/WETH 50%/50% 0.27% (dynamic fee) Balancer pool with $7,206,468 liquidity and 24hr APR of 24.80% [1].

The SNX 0.2% Bancor pool with $5,474,111 liquidity and 24hr APR of 12.01% [2].

The SNX/WETH 0.3% Sushiswap pool with $1,598,360.21 liquidity and 24hr APR of 52.28% [3].

The SNX/ETH 0.3% Uniswap v2 pool with $1,086,696 liquidity and 24hr APR of 44.80% [4].

The SNX/ETH 0.3% Uniswap v3 pool with $836.78k liquidity and 24hr APR of 20.64% [5].

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, 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.

Furthermore, an increase in the SNX pool APY might attract more liquidity to the pool. If the pool gets full, a proposal to increase the trading liquidity limit can be proposed, as the Bancor SNX pool is not the deepest on Ethereum.

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 SNX pool from 0.2% to 1%.

Against

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

[1] Balancer
[2] Bancor: Converter 578 | Address 0xb0536a57a8D8f5327C62d0fECbA23C5a27b5118b | Etherscan
[3] https://analytics.sushi.com/pairs/0xa1d7b2d891e3a1f9ef4bbc5be20630c2feb1c470
[4] Uniswap Info
[5] Uniswap Info

[tfns]

There was a mix-up posting on Snapshot between this proposal and the Proposal: Increase space in the SNX pool from 5,000,000 BNT to 9,000,000 BNT. We’ve chosen to postpone this proposal to go up on Snapshot on 2022-02-13T00:00:00Z.

The proposal to increase the trading liquidity limit has been kept up. Since it had around 36 hours on the governance forum, if the proposal fails, it should in my opinion be pushed forward again, to allow for more discussion time, but happy to hear anyone’s thoughts on this.