Turn on the Minswap Fee Switch

Hi All,

For those of you who do not know me, I am Marco, a KFC’er, a Defi Researcher, who currently works in Asset Allocation/Portfolio Mgmt in TradFi. I am the author of the formula that determines the emissions points breakdown for the Minswap Farming Pools (see original medium article here along with @PurritoGeneral and @madblocks ). I also authored a piece on dynamic emissions programs based on some conversations I had with @PurritoGeneral… just trying to give some background.

Minswap has the ability (just like Uniswap) to turn on a fee switch for the LP fees that are currently collected by liquidity providers. So currently each swap incurs a 0.3% fee that the swapper must pay. All of the collective Liquidity Providers recieve this 0.3% fee pro-rata. For example, if I swap 100 ADA for MIN, I get 99.7 ADA worth of MIN, and collective Liquidity Providers get the other 0.3 ADA.

I propose that Minswap immediately turns on the fee switch to collect 0.05% of each swap, and allows the other 0.25% to continue to go to Liquidity Providers.

Why Now
Because currently Minswap Treasury is not collecting any revenue for the swaps. The only revenue that Minswap Treasury is currently collecting is any protocol that decides to go through any one of the Launchbowl Programs. We all want to see Minswap succeed. In order to do that, we should be entertaining all potential revenue options of the Minswap Treasury (and the eventual Minswap DAO). The revenue collected can be used for many different functions. Minswap is a brand new protocol, it shouldn’t have to be distributing revenue immediately to the token holders (or some version of token holders, whether staked, locked, LPed, or some combination of them). However, at some point (like all companies that mature), Minswap may want to distribute a real yield to the MIN token holders. This fee could eventually be used for that as well. As of now, given the amount of volume, and the low collection rate of 0.05%, this would not be substantial. To be honest, the 0.3% that LPers get now as fee revenue isn’t that substantial anyways from an APR perspective, they are not going to miss the 0.05%. So what should Minswap Treasury do with it?

What to do with the fee
To be honest I am not 100% sure and very open to discussion. My initial thoughts are put it to work. If Minswap collects both ADA from people who swap ADA to any token, and MIN from people who swap MIN to ADA or any other token, the treasury can pair the 2 assets into an LP and create more Protocol Owned Revenue (POL).
Any leftover ADA can be used to pair with other tokens (preferably by their current APR), and 100% should be farming those tokens for MIN and other farmed tokens.
Eventually DAO tooling will be available and MIN holders can vote on which tokens to include in Protocol Owned Assets (POA) (sometimes also called Protocol Controlled Assets or PCA).
But as of now, I think we should be collecting all fees, and creating ADA/MIN LP.

Additional Thoughts

  • I am of the opinion that the Treasury should be managed by people experienced with portfolio mgmt as well. I would be open to having a group of unique individuals be delegated representatives for PCA/POA mgmt of the Treasury

  • I believe that all PCA/POA should be farmed if available. This includes the POL of ADA/MIN (even if its not 100%, why should the Treasury not earn the MIN it deserves).

  • I believe all tokens collected as fee revenue should either be put to work as LPs, or swapped into ADA. Eventually I would like to see the treasury build up a diversified stablecoin reserve as well. However, we need Stablecoins to launch on Cardano. Diversified across stablecoin type, like fiat backed Mehen, CDP backed (there are many launching), and algo based (Djed, also collateral backed).

  • Until the appropriate DAO tooling is there, we should have a multi-sig set up to manage the treasury. This would include decisions like, how to manage the fees collected (my ideas above), how to manage current POA/PCA (ADA/MCOS as example, and ADA/MIN). This committee could be select people from the team (I am happy for it to be 100% team), and community as well. How we do this effectively and efficiently is up to us to decide. I have many many thoughts around Treasury Management, some of them I codified with zygomeb at Optim in the Optim ODAO Council/Delta Constitution. Mostly focus on Section 3.

The current Minswap Emissions Points Formula is already set up to Optimize for this (heavily weighting towards farms with high volume to incentivize deeper liquidity for those LPs and to incentivize more swapping to come through Minswap DEX for that pair). Lets actually use the formula the way it was intended to be, to collect revenue for the Minswap Treasury.

I am in the discord (marco_112358#2400), on Twitter (@Marco_112358), and obviously here. Please feel free to reach out.

15 Likes

As an LPer on Minswap i agree and would take that small reduction in LP fees in order to start filling up the Minswap treasury.

3 Likes

Let’s get it on! I’m interested in POA and POL however, as you say, there needs to be governance in place for portfolio management. Perhaps, in the initial stages the fee switch focuses on Ada/Stable POL until governance becomes sophisticated enough.

3 Likes

I’m all for it. Consistent revenue for the protocol ensures longevity

4 Likes

Hi. Mi opinion
**Turn on the Minswap Fee Switch: YES. May be we shoud increase fee to 0.35% and do not affect LP providers. In other dexes lps are way higher (1%)
What to do with the fee: SWAP&Zap in the ADA MIN LP with all the fees collected. All other revenues generated with POL (ie Mocossi lp) swap&zap them in ADA MIN LP

2 Likes

Sundaeswap has 0,3% and 1% for some pools and i think Wingriders has 0,35% with the protocol taking 0,05% of that. I personally think that having the lowest fees has the potential to drive higher volume and earning more in the end.

1 Like

I feel similarly, especially as new DEXes (supposedly) launch on cardano, they will be ablr to really push forward with high emissions. Keeping low fees may be necessary.

Tho there could be an argument made here to increase fees temporarily as we have deepest liquidity. But id prefer not to rent extract swappers if we dont have to.

2 Likes

I think that what really drives best exchange prices is higher liquidity. It is way more expensive to place a 1000 swap of a token in a pool with 100,000 TVL an a fee of 0.3% than to swap the same token in a pool with 1M and a fee of 0.35%.

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Very fair point. Honestly the true cost of a swap is the slippage plus fee (probably in reality its = (1+slippage)*(1+fee)-1). Slippage is exactly the point u just made, definitely a cost to a trader. Something a DEX aggregator will optimize for.

This relates to another topic I am curious to research (if i ever have time), dynamic fees. Something like trader joe or croc swap may implement.

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Yes that true. Maybe if we have the 0,35% in just the pools that are deepest in the market.

Yeah I didn’t think of that. There has gotta be an interesting way to optimise for this! Dynamic fees sounds next level.

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If you relate dynamic emissions with that. The dex “knowing” it’s competence and automatically updating parameters to attract liquidity

2 Likes