Higher rates in the ADA/MIN pool

Hello everyone! I hope you’re having a good evening. I’ve been thinking, and I came up with an idea. I’m not sure if you all agree with me, but I propose that the fee for the MIN/ADA liquidity pool be higher than the others. This would serve as an incentive for liquidity providers. Currently, I’ve noticed that the APY is very low and the inflation rate is high. Moreover, it’s important to consider that the asset doesn’t offer much incentive for holding, except within the pool, as there is no staking available (although Fee Swetch partially addresses this issue, it’s not a complete solution). While it’s great to see that Fee Switch is gaining a lot of fees, I believe that those of us who provide liquidity in that pool should also earn more compared to Fee Swich. Therefore, I suggest increasing the fee (only for that pool) from 0.3% to one of these three options: 0.4%, 0.5%, or 0.6%. This proposal should be voted on in the DAO. I firmly believe that this could boost the price and liquidity since trading is currently very low and inflation is very high.

  • yes, pool fee ADA/MIN in 0.4%
  • yes, pool fee ADA/MIN in 0.5%
  • yes, pool fee ADA/MIN in 0.6%
  • NO

0 voters

1 Like

I wouldn’t prefer that. I would prefer that a part of all fees on Minswap will be exchanged to MIN and burned. So all MIN holders have a profit from the sales on Minswap.

1 Like

While I agree in principle that Trading Fees are worth looking at to benefit LPers, I am not so sure that the min-ada pair specifically warrants any extra impost for bidders until it can prove that the impost would be gladly subsumed by bidders in a tradeoff for the benefit of holding Min. Instead, the current pricing structure should be maintained to encourage liquidity to move off into more lucrative pools (higher TF APRs minimum case) and the resulting min rewards on those to serve as a hedge against IL and an “enlistment” in the ongoing governance of the protocol.

Hi Timmi,

Burning assets without adding liquidity lacks value. Instead, it is much better to recycle the funds obtained from burning, as it provides higher profits to liquidity providers, making them more likely to invest in the protocol, especially in ADA/MIN.

By increasing liquidity, the impact on the price would be significantly reduced, as liquidity would be more concentrated. Additionally, by holding assets long-term and taking advantage of compounding interest, MIN would become deflationary more quickly. This is better than simply burning the asset, as there would be no compounding interest involved.

Let me give you an example: If ADA and MIN had a 1:1 ratio, someone exchanging 1000 MIN would pay a fee of 0.6% in ADA, which is equivalent to 60 ADA. In return, they would receive 940 MIN. If that person decided to exchange those 940 MIN back for ADA, they would pay a fee of 56.4 ADA and receive 883.6 ADA.

In this case, liquidity providers would have gained profits of 114.4 ADA/MIN. These profits would accumulate and allow them to participate with more assets, as that benefit of 114.4 ADA/MIN would increase by 0.6% each time new transactions are made. This gain would be potentially infinite if many assets are accumulated long-term (similar to being a “whale” in financial terms).

However, if nobody takes those assets and only focuses on burning MIN, liquidity would decrease, participation would diminish, inflation would increase, and the price would collapse, as is currently happening. In summary, there would be no real gain in the asset because there would be no reason to hold MIN.

If those assets are simply sent to a dead wallet, it would be the same as holding those assets long-term without using them, which would have no benefit, and the money would be lost without any purpose. Burning assets is a problem rather than a solution. An example of this is the case of CAKE, where they burn 8 million assets weekly through transactions, and the price decreases despite the burning. There is no real incentive for the asset, and the only utility it offers is the inflation associated with staking.

If those assets were recycled, the investment would grow exponentially as they would reach their maximum supply faster, and those 8 million assets, instead of inflation, would be distributed among stakers, significantly increasing holders and liquidity. Think about it, burning makes no sense. Without associated fees and without rewarding liquidity providers, there would be no liquidity providers, and the impact prices would be extremely high, which would be more detrimental. Instead, a 0.6% fee (or possibly 0.5%) as I propose would be fairer. Trust me, a whale would prefer to pay a 1% fee instead of facing a 10% impact price. For example, I recently exchanged the asset and paid more than a 0.3% fee in impact price plus the fee.

In conclusion, burning assets is harmful because it reduces liquidity, decreases participation, increases inflation, and causes a decrease in price. Recycling assets and rewarding liquidity providers with fees is a much more beneficial strategy, as it increases liquidity, promotes compounding interest, and attracts more investors to the protocol.

I hope this explanation is clearer and more understandable.

Thank you for your precise explanations. I think it is not clear to me how the Liquidity Providers benefit from the recycling. Will the additional liquidity that comes from the recycling be shared among the existing liquidity providers? I had thought that this liquidity is collected in some wallet that no one has anything from. Only that the liquidity is increased.

Little hint: 0,6% from 1000 is 6 not 60. :money_mouth_face:

What I told you before about recycling was a separate proposal to explain to you that burning doesn’t work. However, increasing the fees only in this pool will increase the profitability per fees.

Currently, MIN inflation is approximately 26% per year. This means that if all MIN inflation were sold in an instant (today, for example), the MIN price would fall to $0.047. This is because the supply of MIN would increase by 26%, but demand would remain constant.

It is important to note that this is only an estimate of the MIN price. The actual price could be different, depending on a number of factors, such as the amount of MIN that is sold, the demand for MIN, and the general economic conditions.

In addition, increasing the fees and being in the liquidity pool will keep the value of the MIN asset by those who compound interest. This is because liquidity providers will receive a portion of the fees generated by the exchange. These fees can be used to repurchase MIN, which will help to reduce supply and increase price.

Overall, increasing the liquidity pool fees is a good way to increase profitability for liquidity providers and reduce the impact price.