[SCP-TBD] Parametric Survival - A Pragmatic Fee Model

Proposal Discussion
21

Really hard to add anything more to @seven7hwave points.

No one is saying fees will drive volume. This proposal gives a way for users to avoid fees by holding a reasonable, and adjustable amount of FOX.

Building good, narrowly focused products will attract volume. That’s a separate and ongoing concern, and the product focus lately has been trending in the right direction quickly, towards what people are currently asking for, and will continue this way.

This proposal is about using the standard way to monetize that good product that we’re continuing to build in an attractive flexible way.

22

@willyfox

  1. “The model and its parameters shall apply to all current and future trade routes or features that include a buy and sell asset(s).” from the specification, intent to cover anything currently in what’s known as the swapper, but I thought this was clearer. If you understand what I mean and have better wording I’m open ears. It’s intended to cover trade routes/bridges/portals (when implemented).

  2. From your assumption that volume is constant, it's the sum of (each trade * fee derived from trade size per above), which by definition is more than optional donations, because they could have only opted out. One can't apply the misleading "75% opt in" that gets thrown around to the volume, as size affects opt out rate - it falls off fast. Lots of people will donate a tiny amount because the utility of the value (a few cents/dollars) is inconsequential to them, sadly also us.
23

@0xdef1cafe

  1. got it, so specifically features where we already have optional donations and/or affiliate revenues

  2. Can you please provide a $ figure here, even if rough? in addition to ~75% of traders optionally donating, the majority of volume has also donated. don’t have the exact figure for this off the top of my head because we don’t have great tracking and miss out on trades from the private version, but i’m pretty confident from the data I have seen that the majority of trade volume has optionally donated since optional donations were enabled

I think super important for the community to understand the expected cost benefit of this. There are some pretty clear costs, but I feel like the benefits are being far overexaggerated.

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@0xdef1cafe

24

First, thank you for posting this @0xdef1cafe if nothing else I love seeing the community so actively engaged in governance on highly important and strategic topics for the DAO and more discussions around FOX tokenomics happening, which have been needed for some time, so if nothing else I appreciate you kicking off this discussion and hope as a whole, regardless of what other ideas are proposed or voted on, that the DAO ends up in a better place via this active discussion. I think it probably will, so thank you for moving this train forward.

Second, without going too far into it I will just say as one community member I was a bit taken a back with how fees were implemented without what I saw as community consent or even being asked the question, especially given the context of the DAO’s history, SCP 128 and the fee debate prior. Having listened to some of the debate around that, I understand where some of those who believed the “monetize defi” line was enough from the recent roadmap proposal to justify the decision. I don’t personally think that was enough, but understand how other reasonable folks within the DAO believe that. I think implementing fees in that way ahead of any clear DAO vote was ultimately a strategic mistake because it will inevitably mean lost support for this and any other fee proposal that otherwise may have supported it. Regardless governance will have its say on that issue.

So currently I am in support of SCP-149 (maybe with some minor updates), but I think that issue at this point is separate and should remain separate if possible from the fee debate which is so strategically important for the DAO. Also to be clear I think it is perfectly possible to be in support of SCP-149 AND this proposal, they are by no means mutually exclusive (and I appreciate this proposal is preemptively specifically superceding SCP-128 with this proposal in order to add that clarity).

As it stands though, I am relatively neutral on the fee debate, as I was neutral when it came up during 128 as well. I think both sides have made some great arguments over time and I plan to support whomever has the best proposal based on the content of the specific proposal and nothing else given the importance of this debate and decision.

So I am not currently “for” or “against” fees, as I am for seeing the best proposals in relation to fees/no-fees and how they interact with FOX tokenomics get discussed and voted on (in such a world I think the DAO wins no matter what).

With that said, some thoughts on the fee proposal that has been presented and where I think it could materially be improved:

  • Overall I like a lot of the ideas in this proposal, waiving fees for small enough trades is smart, if we are going to implement fees having decreasing fees over larger trade sizes make sense to me, and I love the idea of FOX holders getting fees waived. Dare I say its the best FOX tokenomics proposal we have seen to date (but to be fair there have been too few FOX tokenomics proposals, I would hope its something the DAO engages with far more often going forward).

One thing I don’t love is the one tier of “fees or no fees” in regards to one specific number of FOX holding. There is a beautiful simplicity to this (both technically and in how it is explained) but I think FOX holders as a whole would probably be better served if we did the work to tier the fee discount. Like most of the specific attributes the numbers could be debated but I feel like something along the lines of 250k-500k FOX get you 25% off fees, 500k-750k gets you 50% off fees, 750k-1 mil FOX gets you 75% off fees and anything over 1 mil gets you no fees entirely would be a significant improvement over the currently proposed model.

I know this would be technically more difficult, but I think the extra effort would be worth it for a plethora reasons, another cool way might be just proportionally giving you fees off for whatever amount you hold from 1-1 mil fox (and then over the top tier fees are entirely waived), but I think in many ways the 4 clear tiers has the best potential and ability for having real benefits of upping your FOX membership holdings.

The specifics here are less important than the idea, that gradated tiers and spectrums of how much utility FOX gets you should be proportional to holdings at least up to some level that gets you “everything”.

  • I do worry about all sorts of exploitation that becomes possible if the logic is simply “how much FOX does this user hold”. What is to stop someone from simply buying FOX, doing a trade, and selling it right back anytime they want to trade? Or what if they send their FOX to their friends for a few minutes so they can do trades? Just a few examples, but just looking at FOX balance seems a little too easy to game, it seems like it would be better paired with some sort of staking mechanism that locks it for some X amount of time and enables the benefits for trades discounts, free trading, and more. This could be using something already built like FOXy, or a new staking contract if the community prefers, but I think it may be very important to have this in some fashion or another attached to this new tokenomics proposal. (and if I am off base on the technical/exploit challenge, would love to hear how those problems would be solved in a different way.).

  • I think some sort of value accrual that benefits FOX holders (or maybe only FOX stakers if that route is chosen) where those paying fees provide benefits to those who hold/stake FOX is pretty important to include as part of this (even if its not implemented day one of such a program going into effect, I think it could make sense to be discussed now and on the roadmap for implementation relatively soon after). I am not sure exactly what that looks like, if it just takes the form of buyback and redistribute to holders/stakers (e.g. FOXy), buyback and burn, simply a buyback to the treasury, or some other mechanism. I am personally kind of partial to the FOXy mechanism (think it would work well with enough volumes), but I am less concerned with the specific mechanism vs the fact that there should be a mechanism of some sort at least discussed and preferably planned and implemented. (could be as simple at 10% of fee revenues are used for this effort and the rest go to the treasury or some other number that is changeable by governance etc, I think ThorSwap actually gives 75% of their revenues to stakers),
  • There would also be an opportunity if we go this way to start moving more towards some sort of veToken like model where at minimum stakers get increased governance power for locking up their FOX and/or could even turn into the only way to get governance power (I am more partial to the former but there could be good arguments on each side for that). This would likely be best handled in a future proposal though and I wouldn’t try to conflate any potential governance power related changes with this proposal unless the community really wants that as part of this.
  • Finally I think on the graduated fees themselves, if we are going to go this route I think we should raise the lower bound of the curve (maybe to something like 8 or 10 bps) That is still ultra competitive and attractive and we can always lower it down the road if we need, but I think upping it later will be more difficult than moving it down if needed.

Overall, love seeing this debate play out in real-time and look forward to seeing how this discussion continues to evolve and where this and any counter-proposal land.

25

thanks jon! excellently laid out, and i like it!

26
  1. Thanks for your reply Jon, I always appreciate your reasoned approaches. I'll reply to the six dot points in order as they contain the meat.

    Thank you and handshake emoji

  2. The intent here was to strike a balance between simplicity in this initial proposal and isolate the complexity to the decaying fee curve, and make this proposal digestible and not encompass absolutely everything we can and should do. As I mentioned in general chat when I first posted this, it's designed as a starting point to be extensible and built upon, not the end of the road, but it's an important first step. It's not hard to implement accelerating discounts for FOX holders. It would require two curves - the only already proposed above for non FOX holders, and another where the fee is a function of FOX holding + trade volume. This can be clearly communicated here in governance, the UI for users (interactively even), and marketing.
  3. This is the feedback I was looking for, and concerned about. I think users could do the buy/trade/dump, but likely won't, but things users do always surprise me. I agree some staking/locking mechanism feels the most logical to address this. I'm not sure FOXy is the best mechanism for this. The low APR (~0.25% currently) "sticker" isn't great and it has a bit of baggage, but I can also see the merits as it's easy/already build. Again, a balance between simplicity and expediency vs longer to experiment and get to market.
  4. Totally agree, but feel those next logical "give FOX back" steps are better suited to future proposal. Let's try and solve this in parts. Lets get the revenue first, figure out how to distribute later. Buyback + distribute/buy back and burn/simple buyback. Rubber ducking this, buy back is simple enough that it could be included in this proposal. We'd obviously have to manage the question of whether new revenue should be managed on a cashflow/runway basis vs buybacks. Extremes to both sides of the arguments there.
  5. Same kind of response as 4 above, this naturally builds upon it further. I like ve models, Curve has proven this works well, it addresses governance participation too. I just think this is already a large enough pill to swallow.
  6. Good feedback, agree that lowering is much easier than raising in future. It could also be promotionally lowered on a time basis (launches/events/etc) and restored, bunch of things we can do here.
  7. Question for you

    If I augment this to include accelerating discounts for FOX holdings and clearly communicate this, would this gain your support?

Apologies, this was a 16 minute terse reply to get something in writing prior to the governance call. There’s 2-3 things that have skipped my mind while writing this.

Overall, best reply in this thread yet imo, really appreciate your input here, and will definitely be incorporating feedback, while also trying to keep this proposal as a first step/composable vs this becoming an “inflation reduction act” omnibus.

27

Maybe a % of the fees could be used to buy back and burn fox tokens?

28

Cool idea @jonisjon with the veToken concept; this could wind up being a multi-phase evolution (from a Tokenomics perspective). I agree that there’s already a lot to digest here, and adding a governance-related element with veTokens would be a lot to talk about. IMO that would be something best left to a future discussion, depending on how this debate plays out. But also a good example of how tokenomics can be an evolving/living/breathing area for future innovation!

After reading through a few times, the one thing I think this proposal could most benefit from is clearly-defined success/failure criterion. FBL has done an excellent job of ensuring all Product initiatives have this, and I think the DAO could borrow a page from that approach for this proposal. It’s also important because for those of us pushing fees as an experiment, we need a way of testing those hypotheses and invalidating/validating it. Otherwise we’re just repeating the same mistakes of the past and just blindly charging ahead.

@0xdef1cafe alluded to “clear invalidation criterion” in his draft. If we can clearly define that, we’ll be even closer to a buttoned-down proposal that can both inspire and guide the DAO in the coming months (or even years).

29

@jonisjon I’ve incorporated your suggested FOX discounts into the model. Rather than have steps or a non-continuous function, I’ve simply made the FOX discount linear up to a 100% discount for holding 1,000,000 FOX.

I’ve also updated the minimum fee bps to 10bps for more long tail value capture while giving room to lower this in future.

This is about as far as I’d like to go with a single proposal, but hope it satisfies your concerns.

Fees are now a function of trade size and FOX holding.

They say a picture is worth a thousand words, so an interactive model must be worth at least a million FOX

Click the link, CLICK THE PLAY BUTTON, and then play with the charts with your cursor at the bottom to get an understanding of how the trade size and FOX holding interacts what you’re charged, shown in both basis points, and USD.

https://colab.research.google.com/drive/1DloLZDsy4-atEzFOlMixzdPlprFyjHik#scrollTo=rSTRNwfZ-9kO&uniqifier=2

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temp.png1187×459 89.4 KB

30

In terms of clear invalidation criteria, per @seven7hwave comment, I will include the following

“If over the 3 month trial period, 1 month trailing trade volume dips below 50% of the last 3 months average trade volume we will consider this a failure and revert back to no fees.”

Given this is in incubation, and most of the explanatory text in the original post is now validated by the updated model I posted above, I’ll await feedback on the specific changes before updating the wordy body of the proposal, then move this to ideation.

31

Thanks defi…this looks awesome. My only remaining suggestion would be to amend the invalidation criterion so that the volume analysis excludes volume generated by the OP rewards program. The reasoning for this is twofold: a.) said volume was not sticky, and (more importantly), b.) this ensures more of an apples-to-apples comparison. In other words, the results of the experiment should be compared to the status quo of the prior approach, rather than to a brief, incentivized spike that was not sustained.

32

Thanks @seven7hwave - I agree that the COGS of the volume generated by OP rewards needs to be considered, ~$300k or 200k OP tokens. We should consider the underlying trade volume (which we’ve since reverted too since these expensive incentives have expired).

I’ll include the above when I send this to ideation.

33

Moved to ideation here https://snapshot.org/#/shapeshiftdao.eth/proposal/0x9d48be365e022a9c2ad5296ef508c5b510ece88f5f9b7e89cb6a61ccf4220997

34

With this current proposal and the counter proposal (SCP-154) not being able to fit in the character limit of a single vote on snapshot, I have pinned this proposal in its current form to IPFS to maintain an immutable record.

The CID is QmVsox8WdUhpWK35Pm3LvmSGGwtzSMFwwWojWJ7K8Dat7s (which you can use with your preferred gateway IE https://ipfs.io/ipfs/QmVsox8WdUhpWK35Pm3LvmSGGwtzSMFwwWojWJ7K8Dat7s)

The same will be done on SCP-154, so that the snapshot vote can reference both of these proposals and we will maintain a record of their exact text.