SIP-0051 - Adjustment of the AMM fee split

Yes, this was discussed in the community call and i will write down a summary over the weekend and post it here.
But my overall sense is: a 0.05% fee increase should barely be noticeable. Slippage has a much higher cost than a 5 basispoint increase. It’s a tiny step but maybe it will lead to a stabilisation or even constructive development of the token price. Higher token price=>higher pool APY=>potentially higher pool liquidity and less slippage.
That’s speculation of course.
It may or may not play out like that, i will monitor the changes closely, if implemented and report back over short/medium/longer timeframes.

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such simple and effective Idea. Obviously at the moment it wont be the best time to do it since rewards are so very low but this might just be the mechanism that will collect the fees on behalf of the Treasury.

I think you’re right, a 5 basispoint increase is not likely noticeable compared to the slippage on the DEX currently, there is little reason to think it will impact growth in volume. I listened to the recording, I didn’t think any of the expressed worries amount to sound criticisms. Whether such a small change will do anything on the positive side we will have to see, but I see no good reason to worry about the negative side of things, and I will vote in favor.

And, again, kudo’s to you for pushing for this, for sticking to your idea when faced with criticism, and for presenting it so clearly during the call.

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Hello Sovryns,

In the following I would like to summarize the discussion from the community call and provide my thoughts on the raised questions.

@yago draws attention to 2 points: a test run of the SIP in certain pools and different user profiles/price sensitivity.

Test run: This SIP carries the risk that the increased fee will lead to less trading volume, which would be counterproductive. Before implementing this change for all pools, we should consider trying this for some pools first. This would allow us to better assess and evaluate the impact of this SIP.

-In my analysis, i mentioned the SOV reward incentives for pools vs. revenue. Only 2 pools receive these rewards, so if we were to try this on a smaller scale, we should pick one of these 2 pools. This would result in the SOV/BTC pool as the BTC/XUSD pool is the most important one. Besides that, only the 2 mentioned pools show relevant trading volume and may provide data that’s good enough for monitoring. I think doing this only for the SOV/BTC pool will not have any significant influence on staking revenue and it will be difficult to get a signal out of this. I think a 5 basispoint increase is not much risk, especially when factoring in slippage cost.

Price sensitivity: Yago explains the price sensitivity of different user groups. High frequency traders are likely to be much more sensitive to trading fees than hodlers who want to use zero to acquire more btc in the long run. We need to be careful not to lose user groups with such changes. We also need to evaluate what kind of user groups use Sovryn in the first place and how sensitive they are to trading costs. Are other values perhaps more important for Sovryns?

-There are trading rebates for potentially more sensitive margin traders. Otherwise, there is a risk that this increase will lead to reduced trading volume. This will be monitored. We have to keep in mind that there are other factors that may reduce trading volume much more, like the powpeg issue, market conditions, short term loose of trust due to the exploit. If the monitoring shows bad numbers with regard to revenue and trading volume, it could be reversed. Now is a good time to test this. Much better than in january when exciting things launch.

@light points out that a fee increase is not the only consideration when looking at competitiveness. Slippage, security may even be more important than a 5 basispoint increase in the fee.

John Light points out the idea of sustainability. Sovryn stakers receive 100% of the protocol revenue. Sovryn has to be very careful with the finances. The treasury receives 0% revenue for paying ongoing costs. It’s all coming from fundraising in funding rounds.

-This SIP could indirectly boost the value of SOV funds in the treasury by raising the btc-backed APY on staking SOV, boost demand for SOV and therefore also lead to an increased runway.

John Light would like to see an explicit discussion of how Sovryn is going to fund itself when the treasury runs out. How should revenue be used to extend the runway?

-This is a very important discussion that should start sooner rather than later, but is not necessarily related to this SIP. Treasury runway should be the most important thing to keep in mind. The change in this SIP may create a bit more revenue, but it is not even close to have any significant impact on treasury runway.

Light would like to see a discussion around which way would be better for the extension of treasury funds: Doing it indirectly via increased staking revenue, boosting demand, or giving some platform revenue directly to treasury instead of stakers. This could be done by directly sending rbtc fees to treasury or by buying back SOV and sending it to the adoption fund.

-I like all these ideas and would support all of them. But we need to do something. Let‘s see this SIP as a small first step in the right direction. There‘s much more that must happen to turn the tide.

@Ingalandia has some reservation w.r.t. fee increase and competiteveness with other dex’es and asked, if such a change was already implemented on other dapps.

I would be happy about community feedback with regard to the arguments posted here.

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Regarding Yago’s concerns, in my view the increase should be applied universally, and then analyse the effect group by group, and learn from the comparative study. That is to say, on this occasion I do not agree with Yago’s caution, I would not be cautious, I would be aggressive in the experiment. Let’s find out what effect it has when it affects everyone equally, let’s look at the sensitivity to the fee of all traders equally. I have a feeling that if this is not done, it will be a weak test.

Light’s words in the community call are courageous and necessary. I think this debate is extremely important, and sip51 has certainly sparked it. Sovryn’s sustainability deserves a separate post. I ask @light to please initiate it, and the community will join the debate.

SIP51 will be remembered as the SIP of the Community, the SIP that made us think that the little guys can come together and lend a hand to the big guys. And if necessary, open their eyes.

No matter the outcome, I think a door has been opened. Thank you Sacro!

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With regards to how this SIP might affect trading volume I believe that it comes at the perfect time because trading volume is very low and any negative effects will have less impact on the protocol thus giving us the opportunity to make a good assessment of how this SIP might affect volume. I do feel like it is necessary to have all pools included in this SIP because we want to have a good set of data to analyse .
Since this SIP has an experimental tone to it I would suggest that this Fee Adjustment Mechanism be treated as a DIAL rather than a permanent adjustment an be marketed this way. It gives the protocol a nice tool to enhance Staking/Trading volume and adapt to market conditions in order to keep SOVRYN competitive and attractive.

In my opinion a “SOV Buyback programme” it the solution to this. Sovryn should fund itself though SOV and rely on its token for this whether maxis like this or not. This way we tie the future of SOVRYN to the SOV token. The funds for this programme should come from the revenue generated by the protocol and be forfeited by the Stakers and used to buy sov on the market rather that distributing the fees to the stakers. The percentage of revenue used for this programme , like the current SIP , should be adjustable to market conditions and trading volume.
We have seen some big wallets belonging to Early Funders selling large sums of SOV at market without any regards to how much it would affect this rather illiquid SOV market. I believe that those tokens cold be bought and used to secure the future of Sovryn. It would be ironic and also poetic

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Maybe some of you find this relevant for their decision-making:

TL;DR most AMM pools are not profitable (IL is really bad- who would’ve thought!), and a slight fee increase, in what form whatsoever is something that should be considered. Uniswap users seem to start considering this topic a problem for them as well.

@Sitizen great thoughts! I think this is something that can be done by the Exchequer and/or CoT. Just like with LM rewards, we could adjust fees based on subgraph data. Makes sense to me. I also like the idea of buybacks.

The SIP is ready to go to vote. If this discussion catches up, i will wait a bit longer. Otherwise, i will announce the vote tomorrow and voting can be done end of the week.

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Not sure its a question of liking it as a maxi or not. The question is rather: can SOV ever be fit/liquid enough to act as a solid treasury asset. AFAIK, its not meant or designed to be one (unlike BTC). In no case is a buyback program a silver bullet. Going all-in SOV for the treasury exposes the whole thing to considerable risk, even for investors, that doesn’t look sexy in my eyes. What would be sexy is to build a nice BTC reserve as well :upside_down_face:

In the meantime, I fully endorse this SIP.

Although I agree with @Sacro 's point above I would also endorse @yago 's test run suggestion. In any case it will be an interesting experiment.

If other protocols follow this route as well, and if the test-run shows acceptable impact, why not even push a few extra bp, in addition to the 5bp suggested in this SIP?

Lets do this! :saluting_face:

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100% !!!
I am not suggesting a treasury based solely on SOV.
I meant using part of the fees to buy back SOV(rather than directing the fees straight into the treasury - now that i’m thinking about it , might not be the best idea to buy at market and sell at discount to potential investors) which you would use to raise BTC or stablecoins, further down the Line.

Hey Sovryns,

the SIP is ready for vote. Some Sovryns may be on the RSK summit and Labitconf. We also had some intense days in the markets. I think it makes sense to give it a few more days and do the Vote early next week.

I will put the SIP up for vote on Monday 14. As with all SIP’s, voting time will be 24 hours.

If you have any further questions or concerns, please raise your voice.

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I will vote yes enthusiastically. Desperate times, and these are, looking at the token price, demand bold action.

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Hey Sovryns,

voting on the SIP will NOT be today due to the staking contract pause. While technically possible to do the vote, i’d prefer to wait until staking/bitocracy is fully functional again.
I’ll update the timeline once there’s more clarity and the issues are resolved.

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Hello Sovryns!

We vote! SIP-51 will be put to a vote on Wednesday 23/11/2022 at 08:30 UTC.

After consulting with @Ororo, despite the pausing of the staking contract, there are no security concerns with this SIP’s election and execution.

Originally, the SIP was supposed to be conducted last Monday. However, the security vulnerability in the staking contract got in the way. Since then no new SOV could be staked. This could lead to inconsistencies for those who have purchased SOV in the meantime.

However, this SIP was supposed to be done last Monday, and we haven’t gotten any change in VP since then due to the pausing of the staking contract. So we are voting on the VP snapshot from last Monday. I think that is reasonable and I see no reason to delay this SIP any further.

Stay Sovryn!

Sacro

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Lets go!

good work @Sacro @Ororo !

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The SIP is up for vote!
Unfortunately, I made a small mistake and there are 2 votes to choose from. I’m sorry! Voting is still possible. The two SIP’s differ in the “support required” and “VP needed for quorum”: Please vote only at the SIP, what contains the following data in the marker!


The correct SIP is also the one which already has a vote from the address 0x56Cd… has.
For questions about this I am available all day via Telegram or discord.

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Please take a note that for the purpose of verifying checksum (SHA256) it is recommended to use a commit link in proposals rather than github head link:
https://github.com/Sacro21/SIPS/blob/5fb1224b880885eef86ab59bcc3dae7c4484a287/SIP-0051.md
or for short
https://github.com/Sacro21/SIPS/blob/5fb1224/SIP-0051.md
instead of
https://github.com/Sacro21/SIPS/blob/SIP-0051/SIP-0051.md

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The data to check if swaps have been reduced will be available at least 6 months from now. And hopefully, by that time we will already start a bull run so that transactions increase just as normal. I think one year should be plenty to know if this SIP actually helps or hurts. In the meantime, I trust you will be monitoring the progress as well as going back into checking the whales I am missing your reports already.

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I already started working on providing the historic data for AMM volume/revenue today and will publish it very soon with some graphs. This will be updated/monitored in a regular manner to make sure that this SIP does not harm the success of the protocol.

Thanks everyone for making this SIP successful!

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