Raise the DXD/ETH LP on Swapr mainnet to 0.5% [Proposal]

Tldr, this draft proposal would raise the DXD/ETH LP on Swapr mainnet to 0.5%

Disclosure: Caney Fork is a DXD/ETH LP on Swapr mainnet & Gnosis Chain

Background

The DXD/ETH pair on Swapr mainnet has been set at the original 0.25% since launch in December 2020. This is slightly below the standard 0.3% fee for most Uniswap v2 forks; additionally, 10% of Swapr’s LP fees go to the SwaprFeeReceiver. This is not very appealing to LP’s who fear impermanent loss. For most low liquidity tokens, higher fees are the norm.

DXdao increased the swap fee on the DXD/WETH pair on Swapr Gnosis Chain to 0.6% on April 14th. While the sample size is small, there was only a small decrease in DXD trade volume market share, which was more than offset by the increased fees.

The table below compares volume market share and LP fees 110 days before and after April 14th.

Since the fee change, Swapr LP’s on Gnosis Chain saw almost the same amount of fees as those on Arbitrum despite having less than half of the volume. And the fees are being split amongst a smaller liquidity pool on Gnosis Chain too, so the difference in APR for LPs is even higher.

Given the centrality of Swapr’s DXD/ETH pool on mainnet, it seems unlikely that volume will decrease substantially. Meanwhile, the higher LP fee could attract more liquidity to Swapr as the risk of impermanent loss is diminished. There is also a potential upside in higher protocol fees as well, as Swapr’s protocol fee is 10% of the LP swap fee.

Details

This proposal calls the setSwapfee function on the SwaprFeeSetter contract, which is accessible to governance through the Multicall3 scheme to change the DXD/ETH pair, identified as 0xb0dc4b36e0b4d2e3566d2328f6806ea0b76b4f13, and raise it to 0.5% (50)

Risks and Considerations

Raising the LP fee could discourage trading. Higher fee percentage does not necessarily equal more fees for LP’s. This should be less of a concern because the Swapr pool on mainnet is the largest source of DXD liquidity on mainnet. Furthermore, with such low liquidity, slippage concerns have a larger effect on trades than the fees.

The effect on liquidity should be monitored and adjusted if necessary.

4 Likes

The data we have suggests this is a good change. Indeed, we’re unlikely to see a reduction in trading volume, thanks to the reasons you listed. Right now, merely swapping for 1 DXD incurs 0.62% of price impact, and the mainnet gas fee itself would account for another ~1% at 20 gwei. In light of these factors, an extra 0.25% in LP fees is unlikely to discourage current trading behavior.

If anything, combined with the proposal to deepen liquidity with 300 ETH and 1111 DXD, the net effect should be better quotes for traders.