Proposal. Experiment to assess effect of 0.1% swap fee on USDT stable coin pool

Read the original proposal on Discourse

TL;DR

• There is a lack of data to inform decisions about appropriate swap fee levels
• We can utilize Bancor as a test-bed to run experiments to collect data
• Run a 14 day experiment lowering the swap fee on USDT stable coin (from 0.2% to 0.1%)
• At the end of the experimental period (14 days) USDT swap fee will return to the status quo (0.2%)
• Assess the effect on swap volumes and APY relative to other stable coins (USDC, DAI, swap fee 0.2%) to see the effect on swap fee apy

Introduction There has been much discussion on the potential for changing swap fees on large Bancor pools to drive increased liquidity, but quantitative, real-world data is lacking. Data that has been collected previously is not directly comparable to the current competitive DEX environment and liquidity pools.

In essence, the challenge in setting an appropriate fixed swap fee centers on the swap fee paradox: higher swap fees are attractive to LPs at the expense of traders, while low swap fees are attractive to traders but at the expense of liquidity and therefore slippage.

This proposal seeks to run a carefully controlled experiment to collect real world data on the effect of lowering the swap fee on a stable coin pool (USDT). Stable coins are primarily utilitarian with traders acting in a mercenary fashion seeking primarily for price stability and with little or no 'community'. Thus stable coins should be very sensitive to swap fees. The experiment is designed to use other stable coin pools (USDC, DAI) as controls to allow assessment of the effects of the changes. At the end of the experiment, pool fees will return to the status quo, and the data will be analyzed and used to support future experiments and proposals around changes to swap fees.

The Experiment

Change the swap fee on the medium sized stable coin pool USDT to 0.1% for 14 days. At the end of 14 days, the swap fee is returned to the status quo (0.2%).

This experiment will allow the effect of changing the swap fee on one stable coin to be compared to other similar stable coins (USDC and DAI) that will act as controls. By running the experiment over a short period with LM rewards activated we avoid the potential for major external events to impact the experiment and minimize the risk of liquidity flight.

Conclusion

Swap fees on pools is a common topic of discussion but is mostly based on opinion rather than fact. This proposal offers a controlled, short term experiment to provide real world data that can be assessed to quantify the effect of lowering swap fees on performance. More generally, this proposal could act as a template for proposing future experiments to help optimize the operation of Bancor.

Voting Instructions

• Vote FOR to run the stable coin experiment: Change the swap fee on USDT pool to 0.1% for 14 days. Day 14, return to 0.2%.
• Vote NO. Do not make any changes.