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
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 (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.
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).
- user takes part with 100A, where A is any ERC-20 token listed on the DutchX
- liquidity contribution is calculated, e.g. 0.3%
- total fees are 0.3A
- user chooses to settle half in OWL
- calculation of 0.3A into ETH then into USD (e.g. 0.6USD)
- 0.3 OWL is deducted (1USD = 1OWL)
- remainder of 0.3USD (=0.15 A) is taken from the order
- 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
Nothing to change in Magnolia (MGN) model. Keep MGN for market making and trading motivation. Also use MGN for REP distribution option.
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.