Introduction:
Minswap has always been a leader in the Cardano ecosystem, but this doesn’t mean we should not strive to dominate in every aspect. Some liquidity pools suffer from lower volume compared to competitors on other DEXs. This proposal aims to address that by empowering the Emissions Committee (or creating a new committee, if necessary) with the authority to apply a fee switch exception mechanism. This would selectively retain the fees for specific liquidity pools as Protocol-Owned Liquidity (POL), represented by LP tokens, to increase liquidity depth, ultimately boosting volume and competitiveness.
Problem Statement:
While Minswap leads in overall market presence, certain liquidity pools lag behind in volume and depth compared to other DEXs. Improving liquidity depth in these pools could significantly enhance trading volume and benefit the protocol in the long term. Currently, there is no mechanism in place to selectively boost liquidity in underperforming pools, this could be a first step.
Additionally, since the selected pools typically suffer from low volume, the impact on stakers (who would normally receive these fees) should be minimal. This proposal provides a way to address these specific pools without significant disruption to staking rewards.
Proposed Solution:
- Grant Authority to the Emissions Committee: The Emissions Committee (or a newly created body) should be empowered to apply a fee switch exception to specific pools. This would allow fees that would normally go to stakers to instead be kept by the DAO as POL, represented by LP tokens in the selected pools. Some limits could be imposed to the committee, both in time they can apply the exception and the number of pools that can be under the exception at the same time.
- Targeting Low-Volume Pools: This mechanism would be applied only to pools where trading volume is notably lower compared to other DEXs. A prime candidate for this approach is the USDM-ADA pool, which has lagged behind in volume compared to similar pools on other platforms. This mechanisms should be only be applied to underpreforming pools and strategic pools.
- Enhancing Liquidity Depth: Accumulating more POL in these pools would increase liquidity depth, making them more attractive for larger trades and increasing their volume over time. This would ultimately benefit Minswap by generating more fees and improving market efficiency.
- Future Flexibility in Fee Adjustments: As Minswap evolves, LP providers will soon be able to vote on the fees they wish to impose. This tool gives the DAO a future avenue to adjust fees to remain competitive with other DEXs, if necessary in the future. Having the ability to use fee switch exceptions now would lay the groundwork for making these decisions as part of a broader strategy.
- Periodic Review and Adjustment: The committee will regularly assess the impact of the fee switch exceptions and adjust as necessary. If a pool reaches the desired volume and depth, it should be reverted to sending fees to stakers.
Benefits:
- Improved Liquidity Depth: The POL accumulation in targeted pools will attract more trading activity and volume.
- Increased Competitiveness: Minswap can remain competitive with other DEXs by ensuring low-volume pools are not neglected.
- Minimal Impact on Stakers: Since targeted pools typically have low volume, the impact on stakers’ rewards will be small.
- Flexibility in Fee Adjustments: This approach provides a new tool for the DAO to optimize fees as needed, maintaining long-term competitiveness.
Risks:
- Temporary Reduction in Staker Rewards: While the pools targeted for this intervention have lower volume, stakers may still experience a slight reduction in rewards as fees are redirected to the DAO.
- Over-concentration in Certain Pools: There is a risk of over-prioritizing certain pools, so the committee must carefully review the performance of pools benefiting from the fee switch exception.
Call for Feedback:
We encourage the community to provide feedback on:
- The suitability of this proposal to address low-volume pools.
- The selection criteria for pools eligible for the fee switch exception.
- Any potential risks or improvements to the proposed approach.
Next Steps:
Pending community feedback, the proposal will be refined for an on-chain vote. If passed, the Emissions Committee will be empowered to implement this mechanism, starting with the USDM-ADA pool as a pilot. If the results are positive, it may be perfected and added as a permanent tool.