Proposal: Increase INDEX trade fees to 0.5% on Bancor3 only

DAO Archive (SUBMITTED)
1

This proposal is expected to appear on Snapshot for voting on 2022-01-16T00:00:00Z. 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 Bancor3 fee for INDEX trades from 0.2% to 0.5%. The v2.1 pool fee will remain unchanged at 0.2%.

Abstract

Since its launch in October, the Bancor pool for INDEX has struggled to capture AUM, and remains the smallest available pool on L1.

AUM ($) 24 H vol (13jan21) Trade size to have 0.5% price impact
Sushiswap (0.3%) $351,000 $25,000 $888
Uniswap v2 (0.3%) $323,000 $30,000 $817
Uniswap v3 (1.0%) $139,000 $46,000 $355
Balancer v1 (70:30, 2%) $684,000 $14,000 $1,430
Bancor (0.2%) $133,000 $2,400 $336

As such, the pool mainly receives arbitrage/aggregator trades when $INDEX price volatility is high (i.e. the pool is mispriced vs the market).

Even so, the pool has managed to return the equivalent to ~1.8% APY annualised for INDEX and BNT deposits.

As Bancor research (reported in the community call on the 11th of January) found that increasing the pool fees did not have a clear effect (positive or negative) on the pool volume. Therefore there is scope for [reasonable] increases in pool fees to generate more income for INDEX deposits (and Bancor Protocol $BNT).

Note, the INDEX holders have voted to deploy protocol owned INDEX and ETH to uniswap v3 in order to increase DEX liquidity. This is expected to dampen $INDEX price volatility and will have the effect of driving less arbitrage volume to the bancor pool and so reduce the volume in the pool.

Motivation

By increasing the fees to 0.5% we should increase income for the bancor protocol BNT and LP INDEX deposited in the pool. The increase due to the fee income is expected to be greater than the reduced volume due to the higher fee.

Making the fee change take effect on the v3 pool only is intended to have a number of effects:

  1. Encourage v2.1 LP’s to migrate to Bancor3
  2. Encourage prospective LP’s to wait for Bancor3 before depositing INDEX and so save gas compared to depositing in v2.1 and then migrating to Bancor3.
  3. Help build the marketing message around increased income for single-sided staking with IL protection.

For

Increase the fee in the INDEX trades from 0.2% to 0.5% for the Bancor3 trades only

Against

Launch Bancor3 with the INDEX trade fee at 0.2% unchanged vs v2.1.

Links

Sushiswap analytics

Uniswap v2 analytics

Uniswap v3 analytics

Balancer pool

Bancor converter 697

gov.INDEXcoop.com IIP 109

2 Likes
2

Why wait? We can increase the fee immediately.

2 Likes
3

My guess is the pool isn’t too deep right now.

I suggest we edit the proposal to make 2 things happen:

  1. INDEX to move some amount of treasury INDEX to their Bancor pool - with single sided staking and IL protection its a smart move.

  2. Change the fee to .5% now. With the treasury funds, the pool should be deep enough to support a higher fee.

2 Likes
4

Good question!

I can see advantages both ways.
Doing it now generates more income now, and a cleaner data point on the effect of fee changes for Nick to look at.

I’ve been encouraging fellow INDEX community members who hold INDEX to consider depositing. However, at $250 gas to deposit in v2.1, they would need to be a whale to make that money back before Bancor3 migration.

I also feel that the prospect of increased fees would help focus attention on Banocr3 when it launches.

However, I’m more than happy to take a steer from more knowledgeable Bancor community members and make the change immediately if that is recommended.

3 Likes
5

The pool is tiny ($130 K total INDEX and BNT).

At the moment, I don’t see INDEXcoop using treasury $INDEX to deposit. I’ve been advocating for it since before the pool was created in October. However, I’m currently losing that discussion within the coop. We have an approved IIP to use a VISR vault and treasury ETH and INDEX to improve INDEX liquidity - This will happen.

I personally suspect that when INDEXcoop sees the data on Uni v3 vs Bancor they will decide to move the treasury INDEX to Bancor. However, I think trying to change the coops direction without that data is futile.

3 Likes
6

Got it. Happy with the proposal.

We can certainly lean harder into growing the pool after B3 is out, and the gas costs have been reduced.

3 Likes
7

One thing I’ve been thinking is I should specify some KPIs for judging success:

  1. More INDEX deposited as liquidity in Boncor3 than v2.1
    1a) Rapid migration to Bancor3
  2. Higher ROI for INDEX LP’s (and thus also for protocol BNT) in Bancor3 than v2.1
    2a) higher ROI compared to similar size tokens pools staying at 0.2% fee during the migration

#1 and #1a should be pretty straightforward to measure (and achieve as I’ll migrate my LP and have more to deposit…).
#2 I can assess v2.1 by looking at my ROI from October to migration date, and then looking at the Bancor3 data
#2a could take some digging to find a suitable comparison.

Any others?

2 Likes