Change the fee in the MTA pool from 0.3% to 1%

TLDR

• This proposal seeks to increase the pool fees on the MTA pool from 0.3% to 1%.
• An increased pool fee will help siphon more profits from arbitrageurs to the protocol and most likely not affect volume therefore increasing APYs for the LPs in the pool.
• Increased APYs in the pool along with Impermanent Loss Protection will help gather interest from the mStable community to stake on Bancor and fill the remaining space in the pool.

Abstract

Deepest MTA pools on Ethereum are:

The MTA/WETH 80%/20% 0.49% (dynamic fee) Balancer v2 pool with $2,373,024 liquidity and 24hr APR of 15.24% (2.37% from swap fees, 12.87% from Liquidity Mining Rewards) [1].

The FEI/MTA 0.3% Uniswap v2 pool with $1,306,152 liquidity and 24hr APR of 1.60% [2].

The MTA/ETH 0.3% Uniswap v2 pool with $919,915 liquidity and 24hr APR of 14.72 [3].

The USDC/MTA 1% Uniswap v3 pool with $539.26k liquidity and 24hr APR of 115.74% [4].

The MTA 0.3% Bancor pool with $380,711 liquidity and 24hr APR of 0.48% [5].

The MTA/WETH 0.3% Sushiswap pool with $261,214.50 liquidity and 24hr APR of 2.77% [6].

The MTA/ETH 0.3% Uniswap v3 pool with $181.84k liquidity and 24hr APR of 7.19% [7].

Motivation

An analysis on the effect of the pool fees on pool volume conducted on the USDT/BNT pool showed that there is not enough evidence to support a linear relationship between them (Figure 1).

Mark’s comment on the TRAC pool fee experiment sheds some light into the topic.

It’s not a bad idea. Analysis of fee changes the DAO has made up to the present suggest we are still in the noise - in general, fee changes make zero difference to trade volumes, and understandably so. To a wide variety of users, the difference between a 0.2% and a 0.5% swap fee is essentially zero. More importantly, lower fees to drive higher volume is not commensurate with increased returns; Uniswap v3 has attained some truly remarkable volumes, but is currently running at a $20M loss.

The TRAC experiment finished and resulting data can be found in the data analysis governance post [8], and showed that a 1-4% fee resulted in more fees accrued compared to 0.2% and 0.5%.

Figure 2/3 show a decrease in overall pool volume and fees since the end of November. The pool liquidity (Figure 4) has also been steadily falling since the end of the end of November 2021. A proposal to deploy MTA funds in Fei Protocol & Ondo Finance [9] meant 418,797.01 MTA was removed on the 10th of January 2022 [10].

The pool currently has space for 2,918,641 MTA to be staked single-sided.

Increasing the pool fee will help siphon more profits from arbitrageurs to the protocol, most likely not affect volume and therefore increase APYs for the LPs in the pool and protocol-earned fees. The Bancor TRAC pool is a perfect example of such a situation (Figure 5 to 7). Increasing the pool fee significantly increased APY for all LPs in the pool, and attracted more liquidity making the TRAC pool the dominant source of liquidity for TRAC on Ethereum (89.1%).

Therefore, an increase in the MTA pool APY might attract more liquidity to the pool. If the pool space is occupied, the MTA pool on Bancor would have the deepest liquidity in any Ethereum DEX. A trading liquidity limit increase can then be considered.

These reasons justify an increase of the pool fee, and the pool performance will be closely observed if the proposal passes to understand if a consequent decrease in the pool fee is justified.

For

1. Increase the pool fee in the MTA pool from 0.3% to 1%.

Against

1. Keep the pool fee in the MTA pool at 0.3%.

[1] https://app.balancer.fi/#/pool/0xe2469f47ab58cf9cf59f9822e3c5de4950a41c49000200000000000000000089 [2] https://v2.info.uniswap.org/pair/0x9241943c29eb0b1fc0f8e5b464fbc14915da9a57 [3] https://v2.info.uniswap.org/pair/0x0d0d65e7a7db277d3e0f5e1676325e75f3340455 [4] https://info.uniswap.org/#/pools/0xc2d5acd2f49c0ab261c58de2da3a35a23a3abbb1 [5] https://etherscan.io/address/0xb2f71da1b104EFae99A4BD824B27B2B102Fe3ECB [6] https://analytics.sushi.com/pairs/0x663242d053057f317a773d7c262b700616d0b9a0 [7] https://info.uniswap.org/#/pools/0xa96c549fa361181a94c081597171e17d27459dbb [8] https://gov.bancor.network/t/trac-pool-fee-changes/3353 [9] https://forum.mstable.org/t/tdp-28-fei-protocol-ondo-finance-laas-opportunity/727 [10] https://etherscan.io/tx/0x337eb91d6d48756398f87b62cb962a42a60b6a3eb7c5d526d847e09e9714e13b2