Increase INDEX trade fees to 0.5% on Bancor3 only
TLDR
This proposal seeks to increase the Bancor3 fee for INDEX trades from 0.2% to 0.5%. The v2.1 pool fee will remain unchanged at 0.2%.
Abstract
Since its launch in October, the Bancor pool for INDEX has struggled to capture AUM, and remains the smallest available pool on L1.
| AUM ($) | 24 H vol (13jan21) | Trade size to have 0.5% price impact | |
|---|---|---|---|
| Sushiswap (0.3%) | $351,000 | $25,000 | $888 |
| Uniswap v2 (0.3%) | $323,000 | $30,000 | $817 |
| Uniswap v3 (1.0%) | $139,000 | $46,000 | $355 |
| Balancer v1 (70:30, 2%) | $684,000 | $14,000 | $1,430 |
| Bancor (0.2%) | $133,000 | $2,400 | $336 |
As such, the pool mainly receives arbitrage/aggregator trades when $INDEX price volatility is high (i.e. the pool is mispriced vs the market).
Even so, the pool has managed to return the equivalent to ~1.8% APY annualised for INDEX and BNT deposits.
As Bancor research (reported in the community call on the 11th of January) found that increasing the pool fees did not have a clear effect (positive or negative) on the pool volume. Therefore there is scope for [reasonable] increases in pool fees to generate more income for INDEX deposits (and Bancor Protocol $BNT).
Note, the INDEX holders have voted to deploy protocol owned INDEX and ETH to uniswap v3 in order to increase DEX liquidity. This is expected to dampen $INDEX price volatility and will have the effect of driving less arbitrage volume to the bancor pool and so reduce the volume in the pool.
Motivation
By increasing the fees to 0.5% we should increase income for the bancor protocol BNT and LP INDEX deposited in the pool. The increase due to the fee income is expected to be greater than the reduced volume due to the higher fee.
Making the fee change take effect on the v3 pool only is intended to have a number of effects:
- Encourage v2.1 LP’s to migrate to Bancor3
- Encourage prospective LP’s to wait for Bancor3 before depositing INDEX and so save gas compared to depositing in v2.1 and then migrating to Bancor3.
- Help build the marketing message around increased income for single-sided staking with IL protection.
For
Increase the fee in the INDEX trades from 0.2% to 0.5% for the Bancor3 trades only
Against
Launch Bancor3 with the INDEX trade fee at 0.2% unchanged vs v2.1.
Links
Off-Chain Vote
For
3.66M 64.6%
Against
0 0%
Abstain
2M 35.4%
Timeline
Jan 16, 2022Proposal created
Jan 16, 2022Proposal vote started
Jan 19, 2022Proposal vote ended
Oct 26, 2023Proposal updated