Protocol Fee Adjustment for Chang Hardfork

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1

Hello Sundae DAO Community!

Abstract (tl;dr)

With the recent Chang hard-fork, the transaction fee for scoops has increased, and scoopers are currently operating at a loss. We propose two ways to rectify this and ensure the sustainability of the Sundae protocol.

Background

The sundae protocol charges a fee for each order, and that fee is composed of two pieces:

  • The Base Fee, meant to cover the core transaction costs of performing the scoop, and shared by all members in a batch
  • The incremental fee, meant to generate revenue for the protocol, and allow it to pay its bills, such as paying scoopers for operating core pieces of the infrastructure.

With the recent Chang hard-fork, a change was made to how cardano transaction fees are calculated. Concretely, the average transaction fee for scoops in the month of August was 0.343929 ADA, and since the hard fork, the average has been 0.608447 ADA.

The reason for this increase is related to a potential denial of service vulnerability that was discovered; The ledger team is being cautious about the pricing, and it is likely that this fee can be decreased slowly over time.

In the mean time, though, the scoopers are projected to be operating the protocol at a loss.

In order to ensure the protocol is sustainable long term, we must ensure that these fees are paid for and correctly incentivize scoopers.

We propose two different ways to address this:

  • Raise the total protocol fees to 1.28 ADA, composed of a base fee of 0.612 (the average above plus a small buffer), and leaving the incremental fee as 0.668
  • Leave the total fee unchanged, by raising the base fee to 0.612, and lowering the incremental fee to 0.388.

The former keeps the net protocol income largely unchanged, but may result in less volume relative to other DEXs if they decide not to raise their fees in response; while the latter keeps the protocol fee for the end user unchanged, but slows net income for the protocol.

Remember that this revenue funds treasury purchases of USDM, ADA incentive rewards for SUNDAE token holders, and helps subsidize costs for Sundae Labs.

Decision

We propose the following vote for the Sundae DAO:

  • Vote YES, Increased Fee to direct Sundae Labs to update the protocol base fee to 0.612 and leave the incremental fee unchanged.
  • Vote YES, Constant Fee to direct Sundae Labs to update the protocol base fee to 0.612 and the incremental fee to 0.388
  • Vote NO on this proposal to do neither, and to continue to discuss alternatives

Are you interested in voting in an on-chain governance vote to this effect?

  • Interested
0 voters
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2

Thanks for putting this post together. It makes a lot of sense to me.

I personally would be for option (1) where total protocol fees are raised to 1.28 ada. This will represent a small increase in fees in case an order gets scooped in isolation and won’t be able to share costs w/ other orders/users, but will also mean that in case multiple orders are processed together, the savings will be larger. In fact if just 2 orders are scooped together fees go back to about 1 ada per order.

For this reason scooping multiple orders together might become more relevant, so I was wondering, if we should consider options to get orders to be processed together.

It’s my understanding, and please correct me if I’m wrong, that users can already signal that they’re happy to wait a bit longer for their swap to be processed, but let the protocol make an effort in processing more orders together in order to save on base fee (by sharing them w/ other orders within the same scoop).

This would represent a win/win coz would keep fees flowing into the platform, and encourage use of the DEX by making a best effort in grouping scoops together so to keep fees low.

Ideally and for transparency, we should display users how much they’re saving in fees when multiple orders are scooped together without affecting protocol, pools or scoopers income.

1 Like