[TIP-013] Increase THORSwap affiliate fees from 0.3% to 0.5%

🔗 TIP-013 discussion thread

THE PROPOSAL

If passed, this TIP will increase base THORSwap affiliate fees from 0.3% up to 0.5%, leaving the discounts (vTHOR tiers/ 50% off for $1M+ Whale swaps) unchanged.

Summary

Currently, whenever a swap larger than $100 is completed on THORSwap - a 0.3% affiliate fee ("exchange fee") is collected by the interface. 75% of this is exchanged for $THOR and distributed to $vTHOR holders ($THOR stakers) and 25% for protocol treasury.

Increasing base THORSwap fees helps to increase protocol revenue, create more value for vTHOR/whale discounts and fund more future growth and development. Ultimately, more fees leads to more real yield and less reliance on $THOR emission for $vTHOR.

Abstract

If passed, all affiliate fees - for THORChain, Chainflip, and Maya Protocol will be collectively raised to the new agreed upon amount. This would come in the form of adjusting swap memo/configurations.

vTHOR tiers/ 50% discount for $1M+ Whale swaps and no fees for <$100 swaps still apply.

Motivation

THORSwap and other DEX interfaces are currently not in the phase of the market where competition is based on the lowest fee possible. The interface is still onboarding users based on features and UX, rather than fee structure. Competition is charging more than double the amount of fees yet doing more volume which indicates users generally value direct swapping interface.

With the decrease of CEX credibility, many people will be onboarded to DeFi/using Decentralized Exchanges. THORSwap and $THOR revenue share can benefit from potential revenue increase. Higher revenue from fee share also acts as a marketing tool for the project, which attracts more volume, more users and more marketing.

If the ecosystem/market conditions change, an amendment TIP can be raised to reduce the fee again, which would also act as an easy marketing opportunity. Currently every additional profit can be used for more development and adoption, while there is no indication that THORSwap will suffer instant loss of market share.

By comparing current vTHOR real yield vs emissions. Emissions (4THOR/BLOCK) make up approximately ~10% APY and FEES (~10k/day of which 75% are redistributed) are worth another ~10% APY, totalling the ~20% APY.

Thus, in the current scenario (and assuming stable TVL) to "replace" the Emissions, THORSwap should more or less DOUBLE the FEES. This is the initial consideration. Comparing against competitors, retail users are generally inelastic to fees. Trust Wallet is a good example - the introduction of a base 0.7% fee did not have a significant effect on their trading volume.

Benefits

• Increase protocol revenue (which is needed for protocol growth)
• Create more utility/buy pressure on $THOR, because users will now be incentivised to hold at least 1000 vTHOR to get access to TIER 1 (0.25% fee). Increase real-yield APY (to make eventually the switch off of the emissions a possibility)

Drawbacks

Potential drop in volume. This should be offset by an overall increase in fees. An illustrative example: 100k volumes @ 0.3% = 300 fees 60k volumes @ 0.5% = 300 fees

Thus, if volumes stay above a drop of -40%, the free increase would be profitable AND $THOR token also benefits. From a mathematical standpoint, the VOLUME drop THORSwap can bear when setting up a new_fee keeping same fees is basically 1-1/(new_fee/old_fee)