Worth reviving this discussion based on some observations on mint/redeem transactions the last 2 weeks. There is strong evidence for volume based fees to be the primary value accrual mechanism which would allow the Coop to significantly cut DPI streaming fees for customers.
Basically it’ll shift value accrual to charging arbitrageurs a tax and charging end customers a lower streaming fee vs charging end customers a high streaming fee. To end customers of DPI, they will see a lower streaming fee, and continue to trade on Uniswap (which collects a 0.3% LP fee) with minimal impact.
Based on the volume this weekend, at a 10 bps mint and 10 bps redeem fee, the Coop would have generated $2k in fees (25k DPI * $80 DPI price * 0.1%) in 1 day. Assuming the same daily volume, that’s $60k in monthly fees, compared to the $10k in estimated streaming fees per month. Of course, volume numbers could vary widely and the fees could be toggled.
This is an example of what fees INDEX would pulled in the last 30 days with various mint / redeem fee parameters:
Additionally, arb bots such as this one capture ~3 ETH per ~$200k or around 5-15 bps of the transaction amount. It even makes sense for INDEX to run an arb bot at 0 spread with the mint/redeem fee, which means better prices for customers. And if the bot uses KeeperDAO liquidity pools proposed in this post, the Coop can mine ROOK tokens as well.
What it could look like:
- Cut streaming fees to less than 50 bps
- Introduce a 0.1% mint and 0.1% redeem fee (parameters to be discussed)
- Run an INDEX arb bot using KeeperDAO liquidity at 0 spread
Curious to hear more thoughts here.
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I’m very pro an issuance/redemption fee, as it also provides the following benefits:
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Volume-based monetization: Similar to WBTC and other asset issuance protocols (which charge 0.2%+ on mint/redeems), this primarily affects market makers (which typically mints/redeems when there is a spread). And agreed w/ @richard that the fee generation potential could be much larger than streaming fees. The previous concern is that entry/exit fees could dissuade the carry trade, but that is less of a worry if we are doing intrinsic productivity.
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Increasing user retention: This improves user retention if net fees are lower and only benefits end users (as most do not mint/redeem themselves).
That said, I think this would be a huge boon to sustainability that doesn’t hurt end users.
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+1 I think this makes a lot of sense
Whereas before we were deciding subjectively on the best course of action, we now have some data to back up the decision and it looks good.
This type of fee seems to work on Set products and I was in support when it was first proposed, especially if part of the exit fee is recycled to those still holding. However, it’s worth bearing in mind that the liquidity mining adds a caveat as token holder behaviour may change after that period ends. For example I imagine the people left holding DPI afterward will be stickier, and so velocity of DPI will reduce making the mint/redeem fee less valuable.
I’d personally feel more comfortable waiting to see what the data shows after a month with no incentives to hold DPI besides integrations with Maker/Yearn/AAVE plus any work we complete on the intrinsic side. Let the token stand on it’s own and see what works best. Plus we wouldn’t be introducing this before the end of LM as it would be pretty unfair on LP’s and isn’t aligned with Index Coop values so can afford to wait a little.
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Just came upon this article and wanted to drop it here - as it provides solid background on how entry/exit fees can affect liquidity / pricing for end users.
https://seekingalpha.com/article/4251694-how-hidden-etf-transaction-costs-make-billions-for-market-makers
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Wanted to bump this, I think its a great idea to do this fee on the lower end. 0.1/0.2
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