Change the fee in the MKR pool from 0.2% to 1%

TLDR

• This proposal seeks to increase the pool fees on the MKR pool from 0.2% 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 MKR DEX pools on Ethereum are:

The MKR/WETH 60%/40% 0.26% (Dynamic fee) Balancer pool with $20,961,101 liquidity and 24hr APR (not considering IL downside) of 1.46% [1]. The MKR/WETH Sushiswap pool with $15,621,536.56 liquidity and 24hr APR (not considering IL downside) of 3.05% [2]. The MKR/ETH 0.3% Uniswap v3 pool with $15.15m liquidity and 24hr APR (not considering IL downside) of 12.55% [3]. The MKR/ETH 0.3% Uniswap v2 pool with $11,942,800 liquidity and 24hr APR (not considering IL downside) of 2.88% [4]. The MKR/ETH 0.2% Bancor pool with $6,514,402 liquidity and 24hr APR (with no IL) of 1.37% [5].

Motivation

The effect on pool fees has been thoroughly analysed in the past weeks by the DAO and our team of analysts. Changing the pool fee in the TRAC pool has been a success so far, with APRs increasing for all LPs in the pool. The TRAC experiment finished and resulting data can be found in the data analysis governance post [6], and showed that a 1-4% fee resulted in more fees accrued compared to 0.2% and 0.5%.

Ideally, these experiments and changes should happen for tokens that Bancor dominates the liquidity of. The reasons to pursue a higher fee in the MKR pool are:

• Potentially attract more LPs to the pool, as there is space for 1,890 MKR to be staked single-sided, with no impermanent loss.
• The majority of the MKR pools in other DEXes have a 0.3% fee set, whereas the Bancor MKR pool is set to 0.2%. As the trades on Bancor involve two hops, this situation might be ideal as the ETH pool fee is set to 0.1%, at the time of writing. However, it is worth experimenting with it in order to attract more LPs to the pool and raise awareness about Bancor with the Maker community.
• Furthermore, the market for MKR on AAVE has 50,000 MKR ($120m) total liquidity earning 0.3% with 65% LTV (as most are borrowing 50%, around $60m) and earning 10% on stable farming >> 5-6% APY on their MKR. Raising the fee for this pool can potentially outperform AAVE and bring more MKR LPs to Bancor for set and forget experience, with no risks of liquidation and impermanent loss.
• Increasing the pool fee will help siphon more profits from arbitrageurs to the protocol.

Conclusion

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

For

Increase the pool fee in the MKR pool from 0.2% to 1%.

Against

Keep the pool fee in the MKR pool at 0.2%.