Update Global Default Fees Targeted Swaps XIP#27

Proposals
1

Authors

  • Javery (@Core)

Glossary

  • DAO

  • Fee Structure

  • Target Redeem

Summary

This proposal is intended to increase the current global default fee structure percentage for Target Swaps from 6% to 10%

The current fee structure for all vaults using the default global fees are:

  • 10% Mint (sell)
  • 4% Random Swap
  • 6% Targeted Swap
  • 4% Random Redeem (random buy)
  • 6% Targeted Redeem (target buy)

The result that is being aimed for is creating higher organic APRs for both liquidity and inventory providers based on the existing vault usage.

Rationale

Since rolling out the second version of NFTX Protocol, we’ve recommended setting fees for new vaults at a 10/4/6/4/6 rate with the idea to optimize fees generated for liquidity & inventory providers.

The optimal fee settings for vaults is still something that requires adjusting overtime, with these changes being another step along that optimisation path.

When users require immediate liquidity, they are able to sell their NFTs into the NFTX vault and often don’t discriminate between floor and non-floor NFTs.

These non-floor NFTs are then immediately target swapped out with a fee of 0.06 vault tokens, and due to the small amount of tokens needed the spread is low and often costs a fraction of the cost of the gas for the transaction itself.

The Target Redeem (target buy) fee will remain the same at 6% for two reasons. Firstly, it improves the opportunity for NFTX items to rank high on Aggregator listings (Gem and Genie); and secondly because this approach requires the purchase of 1.06 tokens making the price impact higher and more expensive to execute than with a target swap.

Another reason users will target swap will be to update their existing NFT for one which is more aesthetically pleasing to them, and an additional 4% fee on fee on the floor price is unlikely to sway their decision (for example if the floor is 1ETH for a collection a user is likely to pay 1.1ETH for an item they like rather than get the cheapest item from the collection).

Over the past 90 days there have been

  • 3313 Target Swaps
  • 40 Random Swaps
  • 12020 Target Redeems
  • 2785 Random Redeems

For target swaps this generated (approx) 198.78 tokens in fees.

If the fees were on the new structure (assuming all transactions would have occurred) there would be an additional 132.52 tokens in fees distributed to inventory/liquidity stakers, totalling 331.3

This would mean that 1,325 swaps (almost 40%) would need to NOT have been actioned for the fees to be exactly the same as they currently are (see the table below for the fees generated vs falling activity).

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Opportunity

Updating the fee structure for target swaps will increase the fees generated and improve the APRs for the NFTX vaults.

Risk

  • The fee increase could reduce the target redeem activity by more than 40% and cause a negative impact on fee generation

  • The fees are fixed for 30 days after changes.

Specifications

If this proposal passes, we will update the global default Target Swap fee from 6% to 10%, giving an updated default fee structure of:

  • 10% Mint (sell)
  • 4% Random Swap
  • 10% Targeted Swap
  • 4% Random Redeem (random buy)
  • 6% Targeted Redeem (target buy)

You can check the vaults that will be impacted by this change through this GraphQL query.

Funding request

No. This request requires no funding.

Communication

  • Discord: NFTX

Quorum (for Snapshot)

  • Minimum Quorum: More than 10% of circulating, non-treasury NFTX must participate for a proposal to Pass.

  • Passing Threshold: More than 50% of voting tokens must vote FOR for the XIP to Pass. For changes to the NFTX contract, more than 70% of voting tokens must vote FOR for the NIP to pass.

  • Yes, increase Global Default Target Swap fees to 10%
  • No, leave the Target Swap fees at 6%

0 voters

1 Like
2

Makes a lot of sense.

Target swaps are probably mostly sniping rares rather than finding someone’s forever NFT

2 Likes
3

I totally agree, and a rare is always going to be worth far more that +10% of the floor price so it’s still a great arbitrage opportunity for the user.

4

The fees are already very high, leading to high spreads. Especially in the current market environment, I would not recommend raising fees. On the one hand because of the developing bear market, but also because of emerging competition. In principle, an increase in fees may make sense, but I think that currently is not a good time for this.

5

I imagine this would raise overall yield which is basically the main goal for NFTX. Servicing fewer customers for higher total fees is ultimately a win.

My one concern is that NFTX fees are often criticized for being too high (similar to jack’s points above). I think there’s a lot of nuance to this, because if a vault earns more yield then it attracts more stakers and more liquidity and so it’s possible higher fees actually end up meaning lower prices for target buys (due to less slippage). But nevertheless I do worry about criticisms a bit.

6

Specifically with regards to the spreads, we don’t have much of an issue when it comes to swaps. When you’re doing a target buy you need a full token plus the fee amount in token as well (1.06 tokens for the default), however with the swap you only need the 0.06 tokens which means the spread shouldn’t be an issue.

Ideally by increasing this fee we don’t impact the spread to a point where target swaps are going to be an issue, but also increase the fee generation which results in an increase in liquidity providers to earn the yield, and then a decrease in the overall spread for actual purchases.

With that in mind it would be good to hear if you still think this is an issue, Jack?