This proposal is expected to appear on Snapshot for voting on 2021-06-28T12:00:00Z
TL;DR
There is a lack of data to inform decisions about appropriate swap fee levels
We can utilize Bancor as a test-bed to run experiments to collect data
Run a 14 day experiment lowering the swap fee on USDT stable coin (from 0.2% to 0.1%)
At the end of the experimental period (14 days) USDT swap fee will return to the status quo (0.2%)
Assess the effect on swap volumes and APY relative to other stable coins (USDC, DAI, swap fee 0.2%) to see the effect on swap fee apy
Introduction
There has been much discussion on the potential for changing swap fees on large Bancor pools to drive increased liquidity, but quantitative, real-world data is lacking. Data that has been collected previously is not directly comparable to the current competitive DEX environment and liquidity pools.
In essence, the challenge in setting an appropriate fixed swap fee centers on the swap fee paradox: higher swap fees are attractive to LPs at the expense of traders, while low swap fees are attractive to traders but at the expense of liquidity and therefore slippage.
This proposal seeks to run a carefully controlled experiment to collect real world data on the effect of lowering the swap fee on a stable coin pool (USDT). Stable coins are primarily utilitarian with traders acting in a mercenary fashion seeking primarily for price stability and with little or no ‘community’. Thus stable coins should be very sensitive to swap fees. The experiment is designed to use other stable coin pools (USDC, DAI) as controls to allow assessment of the effects of the changes. At the end of the experiment, pool fees will return to the status quo, and the data will be analyzed and used to support future experiments and proposals around changes to swap fees.
The Experiment
Change the swap fee on the medium sized stable coin pool USDT to 0.1% for 14 days. At the end of 14 days, the swap fee is returned to the status quo (0.2%).
This experiment will allow the effect of changing the swap fee on one stable coin to be compared to other similar stable coins (USDC and DAI) that will act as controls. By running the experiment over a short period with LM rewards activated we avoid the potential for major external events to impact the experiment and minimize the risk of liquidity flight.
Conclusion
Swap fees on pools is a common topic of discussion but is mostly based on opinion rather than fact. This proposal offers a controlled, short term experiment to provide real world data that can be assessed to quantify the effect of lowering swap fees on performance. More generally, this proposal could act as a template for proposing future experiments to help optimize the operation of Bancor.
Voting Instructions
Vote FOR to run the stable coin experiment: Change the swap fee on USDT pool to 0.1% for 14 days. Day 14, return to 0.2%.
Would be interested in the community offering brainstorming some ideas about how best to analyze the data resulting from this experiment and reporting the results
I Like this a lot better as I mentioned in the telegram it’s important to keep at least one of the stables pools as it as a control to better compare the pools. I will vote for this.
Why .1% instead of .15% for a total swap fee from ETH <-> USDT of .3%? Is it to also set the total swap fee for other .2% pools, like LINK, to a total swap fee of .3%?
The reason that I think I prefer .15% is because if the experiment turns out to be significantly positive, we can quickly vote to make the change permanent followed by switching other pools to .15% as well.
Regardless, I’ll support this proposal at .1% or .15%.
I appreciate all the work you’ve put into this @Sjwill!
The key questions in setting up a stable coin experiment is:
How long?
What swap fee?
Will we see a measurable change to volume, swap fee apy, and the size and size distribution of trades being executed?
I want to keep the experiment short to minimize the risk that something happens to the market that can confound data analysis, and to give the best chance as seeing a measurable change, I think having a bigger swap fee change is better. It could be that 7 days is insufficient to see anything anyway. I hope that this is just the first experiment of many, and if we see something dramatic that is to the benefit of Bancor we can devise a new experiment to see if a smaller change is also beneficial.
Good proposal. We need trade slippage plus trade cost (combined they comprise the total trade cost) to remain competitive for selection by yield aggregators. Counterintuitive but lower fees bring the higher volume which in turn raises revenue. ETH pool also needs adjustment downward to recapture volume
I support this proposal although I think we should make the experiment longer (15 days) to be able to make a better assessment. Regardless, we might be able to gleam some useful data if we see a large amount of volume flowing through this pool as compared to the others:
My hypothesis is that aggregators will route to this pool from any stable coin source since you can easily convert via Curve from any stable to USDT for .03%. That will put the overall fees for this hop at .13% which is still lower than the other two stable coin pools. I am wondering if we will see lower volume on the BTC-BNT pairs since the tri-crypto pool on Curve has .06% fees at the moment (this is dynamic and can go lower/higher) which would put the hop from BTC-USDT-BNT lower than the BTC-BNT hop.
