DutchX fee model

Hi everybody!
I am very happy to meet some of dxDAO participants during DAPPCON last week. There were several talks and presentaions about dxDAO and DutchX. I want to start a new discussion about DutchX fee model. Signal your support or offer any improvments, please

DutchX fee model

Current state

Liquidity contribution (LC) - on the DutchX Protocol, liquidity contribution is levied on users in place of traditional fees.

Individual LC depends on amount of Magnolia token held as a percentage of the entire Magnolia market (it is a step function):

=>10% of Magnolia held –> 0.1% liquidity contribution

1%-10% of Magnolia held –> 0.2% of liquidity contribution

0.1%-1% of Magnolia held –> 0.3% of liquidity contribution

0.01%-0.1% of Magnolia held –> 0.4% of liquidity contribution

anything below 0.01% of Magnolia held –> 0.5% of liquidity contribution.

Magnolia

Magnolia (MGN) tokens are intrinsic to the DutchX and lower the default liquidity contribution on the DutchX Protocol. MGN are automatically generated and credited to users: 1 MGN is credited for trading 1 ETH worth of any whitelisted token pair (and of course trading any fraction of ETH generates the same fraction of MGN). MGN are locked by default into a smart contract for which the user’s address is associated with a particular balance.

A user may unlock all Magnolia associated with an address at once and after 24 hours have passed, these tokens may be transferred to another address. The new holder must then lock their tokens again (or a portion thereof) in order to use the Magnolia balance for liquidity contribution reduction.

Magnolia are inflationary, which should incentivise early adoption and continuous use of the DutchX protocol. Magnolia are not needed to participate as a seller or bidder on the DutchX.

OWL

Users may use OWL to settle half of their liquidity contribution. The rest is settled in the token they are taking part in. This does not affect the reduction of your liquidity contribution. The reduction happens first, then half may be settled in OWL. 1 OWL is treated as an equivalent of 1USD worth of fees. The OWL used will not go to any party but will instead be burnt (consumed).

*An example:

  1. user takes part with 100A, where A is any ERC-20 token listed on the DutchX
  2. liquidity contribution is calculated, e.g. 0.3%
  3. total fees are 0.3A
  4. user chooses to settle half in OWL
  5. calculation of 0.3A into ETH then into USD (e.g. 0.6USD)
  6. 0.3 OWL is deducted (1USD = 1OWL)
  7. remainder of 0.3USD (=0.15 A) is taken from the order
  8. 99.85A is placed for the user as his/her order. Note that 0.3OWL are burnt and 0.15A go into the next auction as an extra sellVolume*

How is it used on the DutchX?

OWL is completely optional to use. You must set an allowance for the smart contract for OWL. OWL is then deducted automatically (available using the same address you are trading from). OWL are, however, not needed to participate as a seller or bidder on the DutchX; its use is completely voluntary.

Proposal for DutchX fee model (draft)

Remove LC model and set next fee levels

Individual fee level depends on amount of Magnolia token held as a percentage of the entire Magnolia market (it is a step function):

=>5% of Magnolia held –> 0.1% fee

1%-5% of Magnolia held –> 0.125% fee

0.1%-1% of Magnolia held –> 0.15% fee

0.01%-0.1% of Magnolia held –> 0.2% fee

anything below 0.01% of Magnolia held –> 0.25% fee

Magnolia

Nothing to change in Magnolia (MGN) model. Keep MGN for market making and trading motivation. Also use MGN for REP distribution option.

OWL

Users may use OWL to settle half of their fee. The rest is settled in the token they are taking part in. This does not affect the reduction of your fee. The reduction happens first, then half may be settled in OWL. 1 OWL is treated as an equivalent of 1USD worth of fees. The OWL used will go to dxDAO treasury.

dxDAO use cases for OWL

If dxDAO will run own liquidity pools (bots) one of the best way to do it in safe way is use - Gnosis safe CLI. The benefit is an option to pay ethereum network gas using OWL. https://github.com/gnosis/dx-safe-cli (ask devs opinion!) and also pay the half of DutchX fee using OWL.

Set a OWL awards via dxDAO proposals for market makers. For example - 10 continuously running new token auctions reward could be 500-1000 OWL

Provide liquidity via dxDAO pools for OWL-WETH, OWL-DAI, OWL-GNO. There are no places for trade OWL at the moment.

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Why should we allow MGN Holders to earn REP by locking MGN?

1 Like

I think we should open doors for different public groups. Traders making DutchX succes. Discussion question how much REP distribution could be provide via MGN holders channel?

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I would argue that MGN Holders have been already rewarded on the dxDAO by distributing 50% of Voting Power to this specific group. Those holders are governing the DutchX side of things right now.

With that, I am against rewarding MGN Holders again. Our focus should be to bring new contributors to the DAO.

Ok, I hear you. new REP distribution for MGN holders in near future it is not nesessary. But we need give answer for traders why DutchX is better place to trade. MGN give this answer - you can participate in governeces if you trade on DutchX.

1 Like

I like your Idea rewarding market makers with collected OWLs. If we can check the track record of specific market makers we could reward them over time.

I tend to agree with @corkus that distributing more rep to the same group will not benefit dxDAO at the moment.
I do like the idea of collecting owl fees and incentivising loyal users with fee discounts.

I think we don’t have to agree right now on what we should do with the collected owl. It might be used to incentivise liquidity or to fund further development on dutchX or for something entirely different

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Hello,

I’ve been with DutchX for 9 months now as a market maker. Thanks to YK for providing explanations of the current fee model and suggestions for change. While I agree completely with removing Liquidity Contribution (LC) model, it’s worth noting what happens when we do this.

  1. Current LC model redistributes fees to future (next auction) sellers and market makers (buyers). This was designed so that sell liquidity is stimulated, but hasn’t really worked all that well in my opinion. Market makers make money on such LC fees, so they can offer better exchange rates. If LC mechanism is removed, then all the fees go directly to treasury, none is redistributed. That means market markers will incur additional spread (like a hidden fee) on exchange rates to make money. If you remove LC and introduce a fee that is not redistributed, in effect you are introducing an additional fee for sellers over whatever LC previously was.

  2. That’s why any such direct-to-treasury fee must be sufficiently small, as in 0.1-0.2%. Similar to popular exchanges, or maybe even better, since we are awesome. :slight_smile:

  3. I am currently in favor of removing LC and having a max 0,2% direct-to-treasury fee.

  4. If we are going to keep offering MGN holders fee discounts, it is absolutely imperative that we only white-list tokens with very, very liquid ecosystem. This is because MGN generation can be easily manipulated on tokens with low liquidity. I am being pretty strict about this, and in my opinion, at the present time only DAI and nothing else fits this criteria.

  5. A bit controversially, I am also wondering whether OWL support is needed at all. This is more of a political issue. It really depends on what dxDao can expect from Gnosis in the future. OWL directly distributes value from dxDao to Gnosis as it gives legitimacy to their token and reduces dxDao treasury contributions (in a proposed direct-to-treasury fee model). It may be beneficial if Gnosis and DutchX relationship is cooperative. On the other hand, if Gnosis will have nothing to do with dxDao, OWL usage becomes questionable.

  6. Finally, I am against distributing more REP to MGN holders.

4 Likes