For more background and discussion, please see [Incubation] Enable opt-out donations instead of fees
This proposal will grant authority to the leaders of the Product and Engineering Workstream to implement optional, opt-out donations for any features offered in the ShapeShift App. The optional donations will be clearly visible in the UI (not hidden), and users will have the option to save their preference on their device. As long as both the Product and Engineering workstream leader agree, they will have the power and flexibility to implement these donations however they determine is in the best interest of the DAO until this authority is revoked.
This proposal was created as a counter proposal to Added fees for Thorchain swaps.
Currently, ShapeShift’s application (https://app.shapeshift.com or https://shapeshiftdao.eth.limo/) is an open-source public good that does not add any additional fees onto protocols or services that it integrates. As one alternative business model, the DAO has established affiliate revenue relationships with multiple partners including fiat on/off ramps, DEXs, Name services, Yield aggregators, swag stores, hardware wallets, and validator operators. Once ShapeShift finds product market fit and attracts more users, this model could enable ShapeShift’s application to remain free forever and generate more than enough revenues to cover expenses and fund growth.
“Free” is a powerful concept in and of itself, and the community has the unique opportunity to take this one step further by not only not adding fees, but also sustainably rewarding users who generate revenue for the DAO via their activities in the app with FOX tokens. This could be a disruptively powerful model that could make ShapeShift objectively the best way to use a growing number of crypto protocols and services. This is a model in which users would have to be crazy to not use ShapeShift. This is a model that makes me bullish on the ShapeShift community’s ability to buidl the ultimate interface to the decentralized universe and cultivate unstoppable/unforkable network effects.
I talk about this model in depth in this presentation from ETHDenver 2021: https://www.youtube.com/watch?v=y-TOlyguMjQ
While the DAO is actively generating ~$10k/mo via the affiliate revenue model, current operating expenses are closer to $200k/mo, and the DAO is not profitable with current usage levels and market conditions. With the hope of extending runway and one day being profitable, a proposal has been made to experiment with adding fees onto protocols that ShapeShift integrates. While this proposal has positive intentions to increase the chances of ShapeShift’s survival and success, multiple community members and contributors have expressed concerns that adding any fees could have the opposite effect.
To summarize some of the arguments against the fee experiment:
- Fees alone are not a solution. Ultimately the DAO needs to attract an order of magnitude more users, and fees make it more difficult to attract and retain users.
- An experiment is not needed to prove that users would prefer not to pay fees, and it will be difficult to draw any conclusive results from the experiment. If usage did increase with fees, how could one know how much usage there would be without fees?
- Pursuing grant funding for integrating features that are already aligned with the DAO’s roadmap has the potential to generate far more revenue than fees during the bear market, and abandoning the no-fee public good model could arguably harm the DAO’s grant-fundability
To summarize the arguments for no fees:
- There is no issue with the current business model. Fees or no fees, the DAO needs to attract an order of magnitude more users. By remaining free (or even better, being free and rewarding users who generate revenue for the DAO with FOX), the DAO has the greatest potential to not only survive the bear market, but thrive, and achieve the community’s vision of building the ultimate interface to the decentralized universe.
In addition to fees being a race to the bottom, ShapeShift’s application is entirely open-source. If the DAO did manage to achieve product market fit, it would be very easy and compelling for a single engineer to fork ShapeShift, launch their own governance token, and pursue the no fees + governance token reward strategy. If someone did this, their offering would be objectively better, and ShapeShift would be at a risk of a vampire attack, similar to when SushiSwap forked Uniswap
- and sucked out the majority of their TVL in the course of 1 week with minimal effort. This risk is not a fantasy, but the status quo; whenever any open-source protocol in Web3 realizes product market fit, these forks should be expected. With opt-out fees, the DAO would be in a better position to defend against this attack vector.
- The DAO has not yet attempted the no fee + FOX reward model, largely because it spent the first 1.5 years of its existence focused on rebuilding/open-sourcing the legacy application and architecting it for full decentralization. Before throwing in the towel and adding fees on top of decentralized protocols, the DAO should experiment with rewarding users who generate revenue for the DAO with FOX tokens.
Through the lively community debate(s) on whether or not to experiment with adding fees, a new idea emerged (h/t @graymachine and @hornyfox) to implement optional, opt-out donations. This is the same model that both Giveth and Gitcoin have implemented that enables them to generate revenue and build network effects without mandatory fees, arguably much more than they would generate with fees. For such a controversial, divisive topic, I see this proposal as a solid middle ground which satisfies many of both camps’ desires while also alleviating many of their concerns.
- More valuable data - The data ShapeShift will get from whether or not users are opting-out of fees will give a good idea as to how much users really care about fees. On the other hand, if ShapeShift simply enables fees on THORChain swaps as currently proposed, it will be difficult to draw any conclusions.
- More public goodness - ShapeShift can remain a free, open-source public good, which is a powerful meme, particularly in Web3, and particularly as a community-owned DAO. It also doesn’t require updating existing marketing messaging, and mitigates the risk of upsetting community members or users that were promised ‘no fees forever.’
- More revenues - The opt-out approach has the potential to generate more revenues than mandatory fees, while also alienating fewer users. Further, this proposal grants authority to add opt-out donations to more features than just THORChain swaps, and also doesn’t require removing existing affiliate revenue streams. If this proposal passes, ShapeShift could potentially offer opt-out donations, still generate affiliate revenues, and reward users that generate revenue for the DAO with FOX. Remaining as a public good could also support the DAO’s efforts to continue securing grants.
- Less fees - Another motivation for this proposal is to offer a compelling alternative to adding mandatory fees and to buy time for the community to experiment with the no fees + FOX rewards model.
The optional donations should be implemented in a way such that the donation amount is clear/not hidden, users can easily opt-out of donating, users can save their preference to opt-out locally on their devices, and no additional transactions are required from the user.
This proposal is purposefully left vague to give flexibility to the Product and Engineering workstreams to implement the optional donations on whichever features and in whichever way they best see fit. Both the product (Diggy) and engineering (0xdef1cafe) workstream leaders expressed in the Incubation post that they are not worried about the lift nor UX implications and that if this proposal were to pass, their workstreams would do the necessary work.
- Increase revenues and runway
- Maximize user growth and retention/minimize user friction
- Maximize grant-fundability
- Maintain value prop of “free,” public good status, and meme-power
- Buy time to experiment with no fees + FOX rewards, which could help the DAO in achieving strong and defensible product market fit
- Even though donations are optional, they could add a slight amount of friction to the UX relative to the current status quo of no fees nor opt-out donations
- It’s possible that optional donations would result in less revenues than mandatory fees
- Mandatory fees would not be added to THORChain swaps, and the DAO would not be able to see the results of that fee experiment unless another proposal was passed in the future
For: Implement optional, opt-out donations rather than mandatory fees
Against: Do not implement optional, opt-out donations
Voting for this ideation proposal is live on SnapShot until Feb 9th at 11:59pm CST: https://snapshot.org/#/shapeshiftdao.eth/proposal/0x3382a4363b21fec3a992b1edb9c5caa78391e265121c248c6d81d305ef246f3e
Feedback is welcome and appreciated.