Should we reward Sundae token holders by adding a 2.5 ADA swap fee for distribution? I’ve included the full proposal to be submitted for a vote if this question passes the temperature check.
Title: Rewarding Long-term Sundae Token Holders
Description: The SundaeSwap DEX will add a 2.5 ADA fee to every swap, which will be distributed to Sundae token holders on a monthly basis.
This proposal aims to decentralize earnings by providing a fee generating feature to the SundaeSwap community. The purpose behind adding a fee generating feature is threefold:
Incentivize and reward Sundae token holders for holding their tokens long-term
Provide attractive defi economics to the Cardano ecosystem
Strengthen SundaeSwap’s value proposition to its holders and fortify its position as Cardano’s number one decentralized exchange
The SundaeSwap team and community have strongly expressed their disinterest in developing a Sundae-for-Sundae staking mechanism. The arguments to avoid this type of yield farming are compelling enough to develop alternatives to generating yield on SundaeSwap. Staking the governance token, such as offered by other popular decentralized exchanges, doesn’t provide meaningful value for the sustainability of SundaeSwap, unlike mechanisms for liquidity providing and yield farming, which both incentivize users to contribute liquidity to the exchange. Right now, yield farming is set to expire in four months and continuing the yield farming program hasn’t generated strong interest. In hopes of maintaining and strengthening the SundaeSwap community, alternatives to the current yield farming program should be explored. Revenue sharing is an attractive alternative and will add a much-welcomed new feature to being a Sundae token holder, passive income.
When looking at other DEXs such as UniSwap and PancakeSwap, a 2.5 ADA fee does not diminish the value users get with SundaeSwap. UniSwap and PancakeSwap’s estimated transaction fee structures are as follows:
Protocol Fee: 0%
LP Fee: 0.01%, 0.05%, 0.3%, 1%
Network fee (Gas): $100 - $400
Protocol Fee: 0.08%
LP Fee: 0.17%
Network fee (Gas): ~$0.00000626
The proposal will implement the following transaction fee structure (monthly break down included below):
Protocol fee: 2.5 ADA per swap (~ $2.5)
Scooper fee: 2.5 ADA per swap (~ $2.5)
LP Fee: 0.01%, 0.3%, 1%
Network fee (Gas): ~ 0.17ADA (~ $0.17)
Relative to the other exchanges, adding a 2.5 ADA transaction fee would still make SundaeSwap one of the most capital efficient exchanges in the crypto space. One small, but important, aspect of the proposal. By charging a flat fee instead of a percentage, the SundaeSwap exchange is not punishing liquidity providers for the success of their pools. As the value of the paired tokens rise, almost all of the success will be captured by the LPs and their token holders.
Sundae token holders will be required to stake their Sundae tokens for 30 days, similar to the current yield farming process, in order to be eligible for their ADA distribution. ADA will be distributed via the SundaeSwap faucet on day 31.
Proposed Timeline: The addition of the transaction fee will begin April 1, 2022. Distribution of ADA to Sundae token holders will occur at the end of each month (April 29, 2022 in this case). Sundae tokens not in circulating supply or not staked will not receive distributions.
Governance: This proposal is vote-dependent on the DAO’s upcoming governance portal.
Summary: The DEX will charge a 2.5 ADA fee for every swap, which will be distributed to Sundae token holders every 30 days. Distributions will be handled identically to the current yield farming program, where Sundae tokens are earned based on a 30-day holding period. Distributions will be through SundaeSwap’s faucet.