Proposal #12: Reduce ROBOT/WETH Pool Swap Fee

[Callum]

Background

At inception, the swap fee for the ROBOT/WETH Balancer pool was set at 4.2%, more than 10x the default fee for Balancer Smart Pools (0.3%). This oversized fee was primarily used as a mechanism to reduce the impact of impermanent loss on early liquidity providers.

This protection would usually be provided in the form of liquidity incentives, however the MetaFactory DAO decided that the higher swap fee was a more suitable incentive for LPs who provided liquidity as ROBOT grew from <$1m to ~$8m market cap, and for the DAO (not needing to outlay tokens for LP rewards).

Abstract

Now that the ROBOT market cap is higher, and there is a more diverse set of liquidity providers including the DAO itself (~20% of total liquidity), we believe that it will be beneficial to reduce the swap fee to between 0.25% and 1%, to sit in line with comparable pools across the ecosystem.

The smart pool owner is currently the MetaFactory DAO multisig, so from a technical perspective we would need to initiate a transaction from the multisig to adjust the smart pool parameters.

Motivation

ROBOT/WETH liquidity currently sits at ~2m, a very respectable number considering the market cap of the token and limited number of holders (~700). During discussion around a potential liquidity strategy, we realized that liquidity isn’t lacking, however volume (currently $5k-$20k daily) is.

The ancitipated result of this proposal is that a lower swap fee will reduce friction for users trying to buy and sell ROBOT, as well as potentially attracting users from a broader base who may look to trade the pair actively and take advantage of volatility/arb opportunities.

There are also several paths to be explored around external liquidity incentives, via Balancer LM program, SushiSwap Onsen LM, or another platform all together. The first step in order for ROBOT to be considered for either of these however, is to increase the daily swap volume (~$300k daily for Onsen, unspecified for Balancer).

Specification

We propose that two Snapshot votes are initiated:

• Should the MetaFactory DAO reduce the swap fee from 4.2% to a level between 0.25% and 1%? (to be specified by second vote if successful)
  • Yes - reduce swap fee
  • No - do not reduce fee

In the event that this first vote passes, a second vote would be initiated:

• Where should the updated swap fee sit?
  • Reduce fee to 0.25%
  • Reduce fee to 0.42%
  • Reduce fee to 0.69%
  • Reduce fee to 1%
  • Change fee to dynamic (Between 0.1% and 1%)

We’ll first gather sentiment via the polls at the bottom of this post, before moving to a snapshot vote.

If both proposals pass, the MetaFactory DAO multisig keyholders would be instructed to make the necessary adjustment to the Smart Pool parameters.

Benefits

Benefits of reducing the swap fee include:

• Reduced friction for new users who want to buy ROBOT and join the MetaFactory community.
• Possibility of increasing swap volume to a point where ROBOT could be included in an external liquidity incentive program, which would in turn increase demand for ROBOT and the pool.

Drawbacks

Drawbacks of reducing the swap fee include:

• Possibility of liquidity decreasing overall as there is less incentive for LPs to continue to provide liquidity at lower fee return rates.
• MetaFactory DAO earns less on it’s liquidity position due to reduced fee rates.

Conclusion

We see this proposal as a net positive for the MetaFactory DAO, community and the ROBOT token. Reducing the swap fee means that we can build exposure of ROBOT and therefore MetaFactory to a wider audience through increased token accessibility and the potential for external liquidity incentives.

Vote

Should we reduce the swap fee?

• Yes - Reduce Swap Fee
• No - Do not reduce swap fee

If yes, what should we reduce the fee to?

• Reduce fee to 0.25%
• Reduce fee to 0.42%
• Reduce fee to 0.69%
• Reduce fee to 1%
• Change fee to dynamic

[kiba]

If reducing fees is only intended to increase volume then

1. why do we care about volume?
2. why do we want/need external liquidity mining rewards if we already have ~20% of circulating supply in the liquidity pool?

I am a fair amount of volume on the pool and the biggest thing you could do to increase volume would be to change the pool weighting to reduce slippage so larger orders can be placed at one time. Even if you reduce fees to 0 no one can place an order over $10k without incurring a big loss on slippage.

I requested to make the GEAR/ETH sushi pool for similar reasons to your post. Currently me and DAO are each 50% of the pool with ~$80k of liquidity at todays prices. This reduces the friction to get into MetaFactory and these new entrants are automatically earning 10% APY on their ROBOT. Thats a much easier sell than buying raw ROBOT. The ratio of volume/TVL was higher on the GEAR/ETH pool during the time we were promoting it than the ROBOT/ETH pool. There were a couple days where we had >5% utilization rate on GEAR/ETH and the highest we’ve had on ROBOT/ETH is like 2%. Note that the GEAR/ETH pool has both lower fees and lower slippage than ROBOT/ETH, not only lower fees.

@kiba

Secondary Hypothesis

Listing GEAR/ETH on Sushiswap will generate more volume for the GEAR pool than listing ROBOT/ETH on Sushiswap

[solarcurve]

hey all, I’m a contributor at Balancer - been a buyer of merch from here for awhile and browsed around to this thread. Interesting topic

I am a believer in higher swap fee for emerging projects like ROBOT, but even for me 4.2% is quite high. I like 1% as the sweet spot - at 4.2%, you’re discouraging trading activity imo. I looked at swapping my earned ROBOT and saw the slippage and decided to just let it sit unclaimed. Maybe that’s what you all want to encourage, dunno. I think there is a pretty good chance your fee APY would actually increase if you went to a 1% fee.

I see you all are still on Balancer v1, presumably because you have control over the swap fee via smart pool. You would retain that capability by migrating to Balancer v2 as our Weighted Pool factory supports this. We will also soon have the capability to support pool LP tokens as liquidity in other pools - for example, you create ROBOT/WETH 70/30 Balancer v2 weighted pool (which you can assign token symbol + name to, so call it GEAR) with 1% fee. Then you create GEAR/USDC 50/50 pool with 0.25% fee. Using Balancer’s new Batch Relayer, arbitrage bots will be able to trade ROBOT <> USDC by only tapping one pool to keep both pools aligned at market prices. This allows cheap access to GEAR for newcomers to the ROBOT ecosystem while continuing to offer strong fee earnings for GEAR holders. This is just an example of how it could work.

My opinion, I think the simplest course of action would be to stick with ROBOT/WETH for now. Create a Balancer v2 ROBOT/WETH 70/30 1% fee pool (delegate fee control to metafactory) called GEAR. It is quite possible you could get some BAL rewards as Balancer is exclusive liquidity provider for ROBOT. You can still use the new GEAR for things like the curation game - people can supply single asset liquidity in terms of ROBOT or WETH to acquire it very easily. Our UI also supports the ability to add any amount of each token in one transaction so you have no dust leftover which is nice.

[Sinkas]

Kiba pretty much asked what I was wondering as well. If we care about volume solely because that’s a gateway to external liquidity mining incentives, while we already have such a big percentage of the circulating supply already in the pool without incentive, then why bother?

In the past, we had discussed about changing the ratio to 60/40 or even 50/50 to make the price “stickier”, reduce slippage on bigger orders and have all LPs sell some of their robots into ETH in a controlled manner over a longer period of time instead of all at once (which would impact the price harder). I think that this approach makes more sense than reducing the swap fees.

[kiba]

I also don’t think its even possible to get substantial volume because the token is so concentrated and we’re the strongest diamond hand squad i’ve ever seen. ~30-35% of circulating supply is controlled by 18 addresses (looking at ROBOT + GEAR) If you include the MF DAO’s GEAR tokens that goes up to ~40%. This doesn’t account for people using multiple addresses so it’s likely even more concentrated.

The only ways I see to get volume are 1) convince highly dedicated community members to dump a substantial amount of their tokens 2) distribute more tokens from treasury to people we think will dump them 3) get buy side pressure and pump ROBOT to an insane valuation

I don’t see how any of those are desirable things to do (ok maybe #3 is pretty good )

[James]

Great to see all of the discussion happening here. Wanted to reply with a couple of thoughts re the drive behind this proposal.

Addressing 1. from @kiba, the primary reason behind this proposal is less about increasing volume just for volumes sake, and more about ROBOT volume matching the exposure level MetaFactory has in general. More availability of ROBOT to a wider token holder ecosystem is the primary driver.

The 70/30 pool with a 4.2% fee means any purchase is taking an instant ~5%-~15% loss compared to market (orders from $150 - $150k). As MetaFactory & ROBOT expands it’s reach we want to ensure ROBOT is purchasable by small or large holders without unnecessary cost. During MetaFactory’s early phases, a tight-knit token holder base was ideal; however as MetaFactory looks to expand it’s impact and token holder base, a fee reduction aims to make market purchasing ROBOT a more approachable option (with the 2nd order effect being increasing ROBOT to a price we think reasonable to conduct a ‘treasury diversification proposal’)

For a GEAR/ETH pool, although this is an ideal onboarding method for new token holders, the complexity of buying into a project through LP tokens is something that isn’t going to land for all potential community/token holders.

In terms of the Balancer v2 discussion from @solarcurve - There was a discussion on last weeks community call about this proposal being an ‘overall liquidity upgrade’ vs just a change in fee, but i do agree with @solarcurve:

I think the simplest course of action would be to stick with ROBOT/WETH for now. Create a Balancer v2 ROBOT/WETH 70/30 1% fee pool (delegate fee control to Metafactory) called GEAR.

Hoping to get a few more votes on the forum poll then will throw it up on snapshot with the 2?/3? most voted for " If yes, what should we reduce the fee to?"

[burningfiat]

Good discussion here. We initially agreed that addressing the swap fee alone would be the simplest approach - especially with regards to increasing volume. As James mentioned, we are not interested in doing this for volume’s sake, but rather recognize that new community members / market participants are sometimes discouraged by the fee. And although we are currently a loyal diamond hands crew, there is benefit in growing our market exposure and the number of ROBOT holders. Token distribution is an important element to a healthy and thriving community. That said, I appreciate the feedback and perhaps we should take a more holistic approach to any pool changes and consider the % weighting as well. I believe the end goal here is getting us closer to the typical 50/50 weighting and .25/.3 fee that is standard to other large AMMs - allowing for new ROBOT liquidity pools and market exposure. IMO, the best way to earn ROBOT is through merch purchases, but traders and market makers play a vital role in the health of ROBOT - and in turn, open new opportunities for our community. How to strike a balance between accessibility and exclusivity?

[cryptomooniac]

Nice discussion indeed. I am a tokenholder, but I have not earned any ROBOT through merchandise purchases (mainly due to shipping costs to my country - USPS while available and cheaper is not an option because it would go through my local postal system which is very poor and often items get lost. Plus potential tax duties on top due to the price of the merch).

Why did I buy the token? Mainly because I think MetaFactory is an amazing project. I wanted to be a part of it and get exposure to it - with a long term perspective. This is why I also decided to provide liquidity on the Balancer pool.

The fee is indeed crazy high. While I understand that this large fee was intended to be an incentive for liquidity providers (compensate IL), it is indeed discouraging for new community members and market participants. So, I am voting for a fee reduction. By the way, I also think that the pool should be migrated to Balancer V2. The benefits are very clear.

However, even with the 70/30 and the 4.2% fee, there has been a little impermanent loss (I track my position and the evolution each week, and I do the math).

I see that there has been discussion around shifting weights and people tend to believe that a more traditional 50/50 weighting would be beneficial. Keep in mind that this would also mean much more volatility for liquidity providers.

[kiba]

Initial proposal passed but im still pro pool2 (GEAR/ETH) for a couple reasons

1. It seems like a waste of time and energy to be actively managing a personal AMM instead of focusing DAO efforts on fashion/culture. We already voted to launch the GEAR/ETH pool and never have to worry about it again.
2. GEAR/ETH achieves stated goals better with lower fees than proposed options 0.3% vs 0.25% - 1% and it has lower slippage for larger trades
3. Balancer is a tier 2 dex in terms of brand recognition and volume. We should be bringing the token to our users not expecting users to come to us. Sushi has >20x more volume and users than balancer and is now building a NFT marketplace which will bring more aligned users to trade our token.
4. Its a more attractive investment option for LPs = more liquidity = more volume. We can stack yields from ROBOT/ETH fees + GEAR/ETH fees + GEAR/ETH SUSHI farming instead of cutting fees to ROBOT/ETH (potentially but not definitely increasing overall yield) and increasing impermanent loss for all ROBOT/ETH holders instead of letting LPs opt-in to IL by also LPing on GEAR/ETH (which is partially offset by SUSHI rewards).

At the end of the day it doesn’t really matter which option we use (re: waste of time/energy, this doesn’t affect success of MetaFactory) but im glad we finally have a contentious subject

I also find it interesting that the forum vote tracked almost perfectly to the actual token vote with the exact same number of voters. Don’t think I’ve ever seen that before in any DAO.

[METADREAMER]

Looking into the dynamic fee stuff a bit more, that alone makes the Balancer V2 path more compelling. There’s still a lot of innovation on the way for V2 pools and it feels like it might be a better choice longer term.

At the same time, I don’t think its mutually exclusive, can do both. The GEAR/ETH stuff is harder to understand for a lot of people as well, the extra complication might hinder the success even if its objectively better once you understand the nuances. Feels like its a mid-curve strategy.

[kiba]

Yea can def do both. Outsourcing pool management to Gauntlet is good with me, especially if the can optimize volume/APY for pool1 and pool2 symbiotically.

I think GEAR/ETH is only harder to understand because of the different token name. If we call v2 pool xROBOT instead of GEAR and tell people its ROBOT earning 10% APY no one will ask questions. Majority of people don’t care to understand. How many of us actually know how the EVM works? Yet we use it, even rely on it, everyday

[METADREAMER]

great point on naming