Hello Sundae DAO Community!
Abstract (tl;dr)
In this proposal, we offer SteelSwaps fee optimization tool exclusively to SundaeSwap pools, with the goals of (1) increasing SundaeSwap protocol revenue through fee generation and (2) increasing liquidity providers returns by finding ideal fees that maximize the quantity of trading fees. The end goal is to attract more liquidity to SundaeSwap, thus attracting more trades and volume. In return for providing SundaeSwap exclusive access, we would charge the SundaeSwap protocol a flat fee per month and/or a portion of monthly revenue for three (3) months. No expectation of continuation beyond three months will be expected, but may continue based on a new agreement with either SundaeSwap or individual projects.
Background
SundaeSwap has the unique capacity to assign a fee manager to a pool, where the fee manager can change the fees on a pool in response to market conditions. Recently, SteelSwap described a swap simulator that can simulate how historical swaps can be split, and can be used to find an ideal swap fee that maximizes the combination of volume and earned fees. Fees can be tricky to optimize because increasing fees can decrease volume, so the increase in generated fees would have to offset the decrease in trading volume. The SteelSwap simulator uses a machine learning algorithm combined with the aggregation engine to find the optimal fee that maximizes earned fees. The end goal is to reward current liquidity providers as well as to attract new liquidity to SundaeSwap.
However, liquidity provider fees are only one aspect of the fee structure, with scooper fees helping to sustain the protocol. As trading fees increase, the total number of swaps decreases in addition to the total volume of swaps. Ideally, a balance is struck between maximizing liquidity provider fees and the total number of scoops to both attract more liquidity and properly reward liquidity providers as well as sustaining the protocol through scooper fees.
To this end, I propose the creation of SteelSwap managed pools where the SteelSwap swap simulator is used to propose 2-3 fees for a managed pool that will be posted in SundaeSwap’s Governance channel on Discord for feedback. The proposed fees will be (1) a fee structure that simulations show improve fee gains by 5%-25% relative to pools on other DEXs and is designed to help maximize the number of scoops and (2) the optimal fee that maximizes the fees collected by liquidity providers.
We propose that we will provide this service for up to 10 pools of the community’s choice. Simulations will be run once a week and reported to the community for feedback in Discord. After 48 hours, SteelSwap will change the fees based on the community feedback. In addition to providing the community with fee recommendations once per week, we will also provide a report on the previous weeks fees, including a comparison of fees accumulated for all DEXs that are supported by SteelSwap.
We will offer this service exclusive to SundaeSwap for 13 weeks (3 months) in an attempt to help SundaeSwap gain market dominance (with the goal being that maximizing liquidity provider fees will attract new liquidity). For this exclusivity, we propose one of two different fee structures. The first would be 5000 ADA per month plus 5% of the protocol fees or 10% of the protocol fees. Payments can be made either in ADA or Sundae (where the equivalent value of ADA can be paid in Sundae tokens). During the 13 weeks, we guarantee exclusivity to SundaeSwap and its community the swap simulations and data generated by the swap simulator. At the end of the 13 weeks, there is no guarantee of continuance from either party. SteelSwap can transfer the fee manager to any member of the community, or continue to manage the fees based on a new agreement.
Decision
We propose the following vote for the Sundae DAO:
- The SteelSwap swap simulator data will be exclusively provided to the SundaeSwap community for 13 weeks
- The SundaeSwap community will pick 10 pool pairs to have the SteelSwap simulator to run simulations based on the previous 30 days worth of swaps. The initial choice of 10 pairs can be changed later by community vote, but changes must be made at least 2 days prior to the day data is reported to the community.
- Pools for each of the 10 selected pairs will be created with SteelSwap as the fee manager (if needed) or fee manager status will be transferred to SteelSwap.
- For each of the 10 pool pairs, data on liquidity provider fees and SundaeSwap protocol fees will be provided to the community. 2-3 options will be presented in SundaeSwap Discord for feedback, and after two days the fees will be updated. In addition to this, a report will be generated showing the fees collected by SundaeSwap and all other DEXs for each of the 10 pairs. This will allow the community to determine the effectiveness of the fee simulations and advertise to attract liquidity.
The governance vote will have the following three options:
- Vote YES on this proposal and pay SteelSwap a flat 3000 ADA/month fee + 5% protocol revenue
- Vote YES on this proposal and pay SteelSwap 10% of protocol revenue
- Vote NO on this proposal
Are you interested in voting in an on-chain governance vote to this effect?
- Interested
- Uninterested
