[Ideation] Added fees for Thorchain swaps

Summary

If adopted, this proposal would enable the DAO to experiment with implementing fees on top of all Thorchain based swaps executed through the Shapeshift application.

Abstract

Starting Feb 15th, all Thorchain based trades would be charged a fee of 25bps

Motivation

Since inception, the DAO has pursued a singular vision and business model with respect to revenue generation. To date, there has been little to no data based evidence suggesting the sustainability of this approach given measured user growth and revenue per user. Therefore it is imperative that the DAO continue to experiment with alternate revenue models in an effort to find a path towards self sufficiency.

Specification

Over the next 12-18 months the DAO needs to iterate rapidly towards finding a sustainable business model. Assuming a customer value of .25$/month, and 250k/month of expenses, we require roughly 1,000,000 monthly active users to break even. Based on the most recent data from Pendo, we have approximately 17,000 monthly active users and are losing >%15 of users per month since our peak MAU of 21,000 monthly active users (11/13). We have two paths to pursue aggressively; increasing MAUs and increasing revenue per user. All reasonable experiments that align with either of these paths are worth the DAOs consideration.

The proposed experiment is meant to determine if users value our platform enough to pay marginally more for it than a completely free option when swapping assets via thorchain

Thorchain swap volume will be taken for the month of January as a baseline. If within the first three months of adding fees to thorchain, monthly volume dips by more than 50% from the January baseline, fees will be disabled without any additional governance action.

All revenues generate from these fees would flow back into the general treasury for the DAO.

Benefits

Trade volumes for thorswap were approximately 3.5M USD / month in November '22, this would potentially translate into 8750 USD / month in revenues.

While this monthly amount may seem small, across all of our business models the Shapeshift DAO is betting on very large (> 15% MOM) user growth in all of its projections. Additionally, even this small amount would be our largest source of current monthly revenue.

Implementing fees in a single product allows us to gather important data from our users in a lower risk setting than implementing fees across the entire product line.

Drawbacks

There is the potential that our users are price sensitive and these additional fees cause us to lose existing users or fail to gain additional users. We can not run a true A/B test in this scenario and teasing apart effects of this treatment compared with broad market sentiment, product evolution and other user trends may be difficult, leading to inconclusive data.

As with most open source software, there is the potential for someone to fork the Shapeshift codebase and bypass the fees for personal or public use.

Marketing and PR campaigns would need to be modified to ensure users are not being misguided by the original message of “no added fees”. There would be a small engineering effort needed to augment the existing swapper UI to display the added fees clearly to users and add the transaction memo when interacting with thorswap. Additionally, the DAO would need a RUNE address that is capable of receiving the fees denominated in RUNE.

References

  1. https://dev.thorchain.org/thorchain-dev/concepts/fees

Incubation post -

  1. https://forum.shapeshift.com/thread/incubation-added-fees-for-thorchain-swaps-41766
  2. Thorchain volume by month

Poll on snapshot

https://snapshot.org/#/shapeshiftdao.eth/proposal/0x7fb8b3e9a4d3840be7e29e9761555284a74bc867c5d2c70540ef9e0cd1b33b6f

To highlight changes from the incubation version:

Fee ramp up is simplified per @jonisjon

  1. request

Added rollback criteria per

  1. @joshuAF

Fixed issues with incorrect trade volumes (thanks for pointing out @pastaghost

  1. )
  2. Adds clarity on where these funds would be directed to.

The voting period on snapshot is longer than normal to make sure there is time for community discussion. I think I have voiced enough of my own points of view on this topic and will largely be abstaining from additional debate so others voices are heard. I am glad there is a lot of engagement in the previous thread and believe the community will do a good job in determining the correct path.

Hey @0xean! Just wanted to drop by and say that I support this proposal. I’ve been thinking that this can also lead us to give FOX more utility. Maybe lock your FOX and also lower the amount of fee’s that you pay out? This may not be the place to discuss this but just a thought that I had.

Thanks for these changes.

While I agree we need to find better revenue sources for the DAO, I still firmly believe we need to do so using affiliate programs and not by charging fees directly to users, @willyfox explained in details why and honestly the only counterargument I’ve read to his argumentation is summarized by we need more revenue, which isn’t wrong but doesn’t outweighs the negative impacts this would have on ShapeShift’s image and competitiveness.

I’ll just complement this by showing a chart from a Twitter thread @0xdef1cafe shared in the Product channel for those who might have missed it:

It represents the “double swaps” (two assets, using $RUNE as a bridge) volumes on ThorChain and includes by name one competitor that wasn’t clearly named in the data @pastaghost shared in the incubation thread: TrustWallet, which like us is not charging fees on ThorChain swaps. So we are in the middle of two other very popular apps (ThorSwap and Trust Wallet) which can afford not to charge fees and I really don’t see how beginning to charge fees will encourage people to use our app or even keep using it, even if we provide a better UX and better privacy/transparency.

I think the key concept here is “experiment”. How will SS know how added fees affect user growth/MAU metrics without trying it out?

I understand that it’s meant to be an experiment, but I’m not convinced it can be observed in isolation from the market conditions so I’m not sure we would actually be measuring its effectiveness on our user base.

What I’m more convinced of is that we would factually renounce a commitment we’ve made to our users (no additional fees).

So the vote to me is more of a change in our core strategy/values than just an experiment, I do not think that reverting this decision after a “Yes”, be it because the volume dipped a lot during the first 3 months or after a second proposal (to cut a revenue source from the DAO, not sure how that one would ever pass anyways w.r.t the runway), would ever restore the current image we’ve tried to build for ShapeShift.

The idea of an expirement is ok, i think we should. after Arkeo is setup, we setup an Arkeo dapp, that has fee’s and our experiment. gets us the data we need, while not taking the risks of losing our current users.

Excellent catch @Fireb0mb1. Thanks for pointing out the missing TrustWallet label - that really presents the data in a different light.

For accuracy, I must amend my comment about ThorSwap affording to not charge fees after digging up a bit.

I relied on the list of USD volume and didn’t notice that some entries do have a BIPS > 0 and some do not. In reality ThorSwap has plans for staking $vTHOR to reduce fees and for trades under $100 in value they do not charge fees. Which explains the different BIPS better.

After installing ThorWallet to check, they do charge “trading fees” by default and also have plans for various level of fees based on the amount of $TGT staked. I guess some of the lines with 0 BIPS correspond to the highest stakers or a different promotion for effectively 0% fee.

Remains TrustWallet, from what I can see (couldn’t test yet) they seem pretty adamant that there are no fees added for any kind of swap in their documentation as linked above.

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Even ChatGPT agrees!