NIP-003: Changing the Dynamic Fee Structure to Further Incentivize Convergers

Abstract

This proposal, NIP-003, aims to adjust the dynamic fee structure to provide stronger incentives for convergers, encouraging more active participation and ultimately promoting a more stable and efficient market.

Motivation

The current fee structure may not provide sufficient incentives for convergers to take action when divergences persist for extended periods. By modifying the dynamic fee structure, we aim to encourage greater participation in converging trades.

Proposed Changes to Dynamic Trading Fees

The existing dynamic fee structure has not been adequately encouraging convergers to actively participate in the market when divergences persist for extended periods. As a result, it is crucial to introduce further adjustments to the fee structure in order to provide stronger incentives for convergers, promoting a more balanced and efficient trading environment.

Current Fee Structure

Assuming Mark > Index by +2.5%

Bracket	Divergence Range	Long Fee	Short Fee (v1.1)
B1	2.5%-5%	1%	0.28%
B2	5%-10%	5%	0.2%
B3	10%-15%	10%	0.2%
B4	15%-20%	15%	0.2%
B5	20%-25%	20%	0.2%

Proposed Fee Structure

Assuming Mark > Index by +2.5%

(changes marked in bold)

Bracket	Divergence Range	Long Fee	Short Fee (proposed)
B1	2.5%-5%	1%	0.20%
B2	5%-10%	5%	0.15%
B3	10%-15%	10%	0.13%
B4	15%-20%	15%	0.13%
B5	20%-25%	20%	0.13%

Rationale for Changes

• The updated fee structure provides further incentives for new positions to participate in converging markets.
• Fee reduction now scales with divergence. Although significant divergence (+10%) typically occurs only in edge cases, it may be reasonable to transition to a further tiered structure, e.g., 2bps reduction every 5% divergence past 10%.

Implementation

Upon approval of NIP-003, the proposed changes to the dynamic fee structure will be implemented onto nftperp. The updated fee structure will encourage greater participation in converging trades, leading to a more balanced and stable market environment.

Conclusion

The proposed changes to the dynamic fee structure in NIP-003 aim to provide stronger incentives for convergers to actively participate in the market. The new fee structure will encourage a more balanced and efficient trading environment within the nftperp ecosystem, ultimately benefiting all participants.