[DRAFT] SIP-31: Splitting AMM fees with stakers

I have published another draft SIP on GitHub for review:

SIP-31: Splitting AMM fees with stakers

As always, I welcome comments/questions either here or on GitHub! Cheers

11 Likes

Short and sweet. This proposal looks like what was discussed in the forums and on the community call

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Seems fair. A 0.25% / 0.05% split is very reasonable, and as long as LP is highly incentivised with SOV drops they remain a more than profitable proposition.

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This proposel is great and well needed. I think the 0.25% / 0.05% split is fair. As long as yield-farming stays profitable enough (which should be the case - but monitored).

This is the best way to incentivise people to stake SOV for long term. I will vote for this SIP.

I like the added utility of SOV. As a new joiner of the Sovryn community interested in the backstory why swaps were not originally implemented with SOV stakers earning fees?

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@Ororo might be able to answer that question

Hi folks, the draft has just been updated to reflect an important change that came up during review. See the diff here for details. The TL;DR is that only Token -> Token and RBTC -> Token swaps will be eligible for the fee split in this initial implementation. For reference, swaps in these categories represent approximately 60% of swap volume in the last 30 days.

@light could we consider juicing the 0.05% fee split as a short term consolation until the other SIP is introduced?

This would be a nice boost to stakers in the immediate term. AMM LP’s shouldn’t care much since most of their revenue there is derived from SOV liquidity mining rewards. When the SIP is introduced to fix the circumvention and rBTC breakout at that point the split could be correctly moved back to the 0.05%.

Fee share on 60% of transactions is 60% closer to where we are now, so I think this is fine, as long as a solution for the remaining 40% stays on the near term roadmap (say, within 3 months or so).

I think the 0.05% fee split was originally @yago’s idea so would want to get his opinion – Yago, what do you think of this?

well explained, thanks! I’d like to see a better splitting rate for stakers until the next SIP is implemented. But overall this solution is really good.

Because the Sovryn AMM started as a Bancor fork, which distributed all fees to the LPs. Back then, our only trading pair was BTC / DoC and users were more interested in the margin trading than in swapping. There were fees on margin trades already, so additional fees on the AMM were not strictly required. Since then, swapping has become way more popular.

2 Likes

I posted this comment on github but I will post it here as well.

While I like the enthusiasm to encourage more staking and reward SOV stakers, I don’t think that removing fees from liquidity providers is the right approach. LPs take significant risk of impermanent loss when providing liquidity to the AMM pools. Their chance of profit is only realized when fees generated exceed the impermanent loss of the positions. I do not support this proposal. I would instead support a revshare of bridge tolls or other non-AMM activities to SOV stakeholders.

Hi @tonygallippi! Nice to see you here. One of the imbalances we want to correct for here is that SOV stakers are responsible for governing the AMM (primarily by maintaining and upgrading the contracts) however they see no financial benefit from doing so. I can understand your concern about cutting into LP fees. However the actual value earned from fees is moreso a question of how much volume there is rather than the fee itself, is it not? If stakers were given a cut of the fees, they would have an even stronger incentive to promote using the Sovryn AMM, potentially driving volume to the AMM. So I can see a scenario where, even though on an equal-volume basis, LPs would be earning less than they did before the fee split, after the fee split there could be more volume and therefore more fees for LPs overall.

I’ll close with a question: let’s say the above rationale was unsatisfactory to you. Would you be opposed to adding the 0.05% fee for stakers on top of the existing 0.3% LP fee, bringing the total fee to 0.35%? This way on an equal-volume basis, LPs wouldn’t be giving up anything?

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Hey John, I think that’s a good compromise. Users swapping would pay 0.35% so that the LPs don’t have to give up anything. I have provided liquidity to SOV/RBTC and even after 100 days, the fees plus rewards I have earned still have not overcome the impermanent loss, so providing liquidity has been overall a net loss. LP’s are risking capital and we want to make sure they are compensated to do so, otherwise they will leave and there will not be adequate liquidity for swapping.

PS It’s been awhile, glad to see you are involved here. :slight_smile:

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Your point is fair, Tony. I’d just like to point out that the SOV/RBTC Pool is by far the one with the most impermanent loss, and predictably so. The SOV price in sats is much more volatile than ETH/BTC, BNB/BTC, XUSD/BTC, etc.

35bps fee is high relative to market. I think we should keep the fee no higher than 30bps. I’d rather negotiate the split than raise the fee. As volume ramps up, the fees should more than cover the IL. However, when I analyze my portfolio, with the level of rewards being paid out over the last several months, they have more than offset any IL that is being incurred.

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@tonygallippi Your point is valid but as @light says the increase in volume should increase the revenue and, as far as I know, most stakers are also providing liquidity as well. I personally have staked portion of my SOV but also provide liquidity for SOV-RBTC and BNB-RBTC, so a cut from the fee won’t really affect those who have staked SOV and provide LPs. Increased volume here is the actual bonus for everyone.

In the current state, SOV LM rewards have more than compensated for possible IL. Fees have been a net profit on top of that.

Going forward’s there are significant optimisations to the AMM which can both increase volume and increase fees earned. Uniswap V3 type concentrated liquidity is a good example.

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