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:
- Partner Fee Sharing: When a partner sets a fee, ParaSwap Protocol receives 15% of it.
- Performance Fee Sharing: When a transaction surplus is created, 50% is returned to the Protocol.
- 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:
- Gas Inefficiency: The complex logic makes the contract more gas-intensive, as all these checks have to be done on-chain.
- 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.
- 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:
- Partner Surplus Monetisation: Remove the 0.5% minimum fee rule to simplify the on-chain checks.
- 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:
- Building of the new Smart Contracts for the optimized fee system.
- 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
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Snapshot Vote Requirements: 5 days
