Throwback: In DFIP-2203-A, "Solving dToken Premium via Future Contracts", Daniel proposed a 0.1% additional swap fee for dToken pools to burn dTokens, totaling a 0.4% trading fee (0.1% fee input, 0.1% fee output and 0.2% commission).
Given data: In March 2022, this was a good idea as burning mechanisms for dUSD were limited. However, new mechanisms were introduced since, such as Dex-Fee, Buy and Burn Bot, Auction Fee, and Paid Interest, which have effectively burned dUSD. By comparing the total amount of burned dUSD with the burned dUSD based on the additional 0.2 % swapping fee, we can see that they are negligible (just 3% of all burned dUSD in the last 6 months were from the swapping fee ; For detailed data check initial reddit post). Especially with the future swap, unbacked dUSD can easily be converted to unbacked dTokens or the other way round. So at the end, it doesn’t matter if we are burning directly dUSD or dTokens. Once we are back to a mostly backed system, we will upload an additional DFIP to get the unbacked dUSD with the unbacked dTokens in balance.
How does this DFIP benefit the DeFiChain community?
Motivation: Traditional markets are currently way faster in trading (faster than a second) and have way lower fees than our current DEX. Short term institutional traders/ market makers etc. who open and close positions within 24h, are responsible for 80-90% of daily exchange volume, while traders which hold positions for some days up to months have much less impact. The lowest impact comes from long-term investors which ‚only‘ buy and hold for years. Professional Brokers usually charge a fixed fee + max 0.1% per transaction. Often those transaction fees are also limited to a certain dollar amount which can make transaction sizes of 100k+ extremely cheap (<0.05%). Eliminating the 0.2% burn fee which is not relevant for the dToken burn and not beneficial for liquidity providers, will be a first step to a way more attractive dToken system. This can ensure a higher trading volume that will provide more commissions for the LMs. This can also incentivize higher liquidity in those pools which can then cause more trading volume in itself. (more liquidity -> less slippage per dUSD = more volume needed to change the pool price). It can work as a positive spiral into a sweet spot of trading volume/liquidity in a pool at a certain fee (0.2%).
Thus, we suggest removing the additional 0.2% swapping-fee for all dToken pairs to 0.
Outlook: This is just the first step towards making trading on the dex more attractive. As the current fee structure is under review, reducing the 0.2% commission at this time may not be ideal. A 50% decrease in fees following approval of the DFIP is expected to increase trading volume, allowing for further changes to be implemented.
Non-obligation
I understand that vote of confidence for DFIP carries no obligations by any developers to implement the proposals. DeFiChain is a community projects. Pull requests can be submitted by community and reserved to be evaluated for safety and general community acceptance.
DFIP Overview
Describe your proposal
Throwback: In DFIP-2203-A, "Solving dToken Premium via Future Contracts", Daniel proposed a 0.1% additional swap fee for dToken pools to burn dTokens, totaling a 0.4% trading fee (0.1% fee input, 0.1% fee output and 0.2% commission).
Given data: In March 2022, this was a good idea as burning mechanisms for dUSD were limited. However, new mechanisms were introduced since, such as Dex-Fee, Buy and Burn Bot, Auction Fee, and Paid Interest, which have effectively burned dUSD. By comparing the total amount of burned dUSD with the burned dUSD based on the additional 0.2 % swapping fee, we can see that they are negligible (just 3% of all burned dUSD in the last 6 months were from the swapping fee ; For detailed data check initial reddit post). Especially with the future swap, unbacked dUSD can easily be converted to unbacked dTokens or the other way round. So at the end, it doesn’t matter if we are burning directly dUSD or dTokens. Once we are back to a mostly backed system, we will upload an additional DFIP to get the unbacked dUSD with the unbacked dTokens in balance.
How does this DFIP benefit the DeFiChain community?
Motivation: Traditional markets are currently way faster in trading (faster than a second) and have way lower fees than our current DEX. Short term institutional traders/ market makers etc. who open and close positions within 24h, are responsible for 80-90% of daily exchange volume, while traders which hold positions for some days up to months have much less impact. The lowest impact comes from long-term investors which ‚only‘ buy and hold for years. Professional Brokers usually charge a fixed fee + max 0.1% per transaction. Often those transaction fees are also limited to a certain dollar amount which can make transaction sizes of 100k+ extremely cheap (<0.05%). Eliminating the 0.2% burn fee which is not relevant for the dToken burn and not beneficial for liquidity providers, will be a first step to a way more attractive dToken system. This can ensure a higher trading volume that will provide more commissions for the LMs. This can also incentivize higher liquidity in those pools which can then cause more trading volume in itself. (more liquidity -> less slippage per dUSD = more volume needed to change the pool price). It can work as a positive spiral into a sweet spot of trading volume/liquidity in a pool at a certain fee (0.2%).
Thus, we suggest removing the additional 0.2% swapping-fee for all dToken pairs to 0.
Outlook: This is just the first step towards making trading on the dex more attractive. As the current fee structure is under review, reducing the 0.2% commission at this time may not be ideal. A 50% decrease in fees following approval of the DFIP is expected to increase trading volume, allowing for further changes to be implemented.
Non-obligation
I understand that vote of confidence for DFIP carries no obligations by any developers to implement the proposals. DeFiChain is a community projects. Pull requests can be submitted by community and reserved to be evaluated for safety and general community acceptance.