Increasing fee capture & adjust DAO / Stakers split

Governance Proposals
1

1. Keywords

PSP 2.0, Fee Sharing, staking, DAO

2. Context

First introduced 2 years ago, the ParaSwap Fee System defines the relationship between partners and the protocol for monetization. To summarise, these are the different ways fees occur right now:

  1. Partner Fee Sharing: When a partner sets a fee, ParaSwap Protocol receives 15% of it.
  2. Performance Fee Sharing: When a transaction surplus is created, 50% is returned to the Protocol.
  3. Partner Surplus Monetisation: If a partner sets a fee below 0.5%, the Protocol automatically captures half of the surplus on top of the fee split.

Thanks to these rules, the protocol has collected more than $37M in Fees and $7.5M in revenue out of over $47B total volume generated. Despise these impressive metrics, the current system has begun showing some limitations which are affecting the protocol and DAO at large:

  1. Gas Inefficiency: The complex logic makes the contract more gas-intensive, as all these checks have to be done on-chain.
  2. Reduced volume: As a consequence of the first point, the final amount received is less than what’s possible. Removing these checks would mean cheaper transactions for users.
  3. Reduced DAO treasury: Due to the reduced volume and current fee logic, the final amount of revenue that the DAO can receive is not as high, slowing down potential growth.

3. Goals

The goals of this proposal are to reduce the problems outlined above by upgrading the current smart contracts to a more gas-efficient system and revising the current fee conditions.

4. Means

To accomplish a more efficient and effective fee system, this proposal proposes the following changes to the current fees:

  1. Partner Surplus Monetisation: Remove the 0.5% minimum fee rule to simplify the on-chain checks.
  2. Performance Fee Sharing: Change the default surplus to 100% instead of 50% unless specified otherwise (such as protocols that opt for surplus monetization instead of partner fee) - this will once again reduce on-chain check complexity while also lead to a higher default treasury revenue. Partners will have to choose between capturing 50% surplus or Partner Fees, but not both at the same time.

These changes can be funded by the ParaSwap Foundation, which shall front the costs of these developments & audits with no additional charge to the DAO.

5. Metrics

With these proposed improvements, the Protocol should expect the following:

  • Increased Volumes: The overall impact will be hard to predict, but a net positive impact should be expected.
  • Increased DAO capture: Thanks to the new Performance Fee Sharing

To summarise, we should see a significant increase in volumes & revenue to call this proposal a success. As a success metric, we can set this target: 100% median volume increase based on the first 4 months of 2023.

6. Implementation overview

The proposal will be composed of the following steps:

  1. Building of the new Smart Contracts for the optimized fee system.
  2. Auditing of the contracts and re-implementation of them.

Finally, to ensure this contract is more future-proof to any proposed changes in the split, if it is found not to impact gas efficiency too much a dynamic fee system can be implemented to the contract.

7. Voting options

For
Against
Abstain

Snapshot Vote Requirements: 5 days

10 Likes
2

Hi Lup, this is a very interesting proposal that seems to make sense.

The current system is complex to understand for users and we can easily see that everyone’s goal is to have the best price (normal for an aggregator).

You say that the costs will be less thanks to the calculation on chain in less.

However, at the time of writing, when defilama for example compares aggregators, does it take into account the positive slippage in its comparison ?

For my part, I see no objection to this proposal, quite the contrary. New users are attracted by the price and not by the positive slippage IMO.
We need to focus our improvements on price and your proposal is completely in line with this! Better price → more users → more volume → more integrations/CEX. The virtuous circle is on its way

1 Like
3

Thanks, @stikers! The Surplus is an unexpected event that cannot be relied upon when choosing an aggregator. It seems like all major aggregators are taking this route for monetization as it’s making more & more sens to their communities :slight_smile:

2 Likes
4

Thanks for this proposal that make sense in term of gas saving.

Do we have data about volumes that partner bring?

I support this proposal.

1 Like
5

Partner volume is estimated at ~42% of the overall volume ($20B/$47.7B). https://twitter.com/paraswap/status/1657054844861988868?s=46

It’s now at around 70% of the volume the last couple of months

2 Likes
6

100% for this proposal which will make ParaSwap more competitive and increase the revenues of the DAO.

The sooner the better!

2 Likes
7

This is a simple proposal that obviously benefits the protocol,the users and the DAO.

I only have one concern though. Since. partners volume in recent times accounts for over 60% of the overall protocol volume, it makes sense to think about how this proposal would impact partners especially since they now have to choose between gaining from positive slippage or protocol fee.

Also, should a partner opt-in to choose positive slippage, does that mean they get to keep the 100% slippage generated while Paraswap gets protocol fee?

8

The proposed upgrade to the ParaSwap fee system aims to address gas inefficiency and improve revenue generation. Simplifying fee conditions and adjusting surplus sharing can attract more users and increase volumes. Careful consideration and community feedback are important for ensuring fairness and integrity.
The implementation plan includes developing new contracts and conducting audits. Transparent communication and informed voting are essential.

Overall, the proposal shows a commitment to enhancing performance and positioning ParaSwap for growth in decentralized finance and I am in support.

1 Like
9

I support this proposal.
Thanks