TL;DR - Cut global default fees in half.
The current global fees for the protocol are set as:
10% mint (sell)
4% random redeem
6% target redeem (buy)
4% random swap
10% target swap
Vault activity has been on a steady downtrend since more marketplaces entered the fold in 2022.
While the global fees were acceptable back in 2021 when NFT liquidity was a somewhat novel mechanism and OpenSea’s fee+royalty regularly took 7.5%, things have now changed. As marketplaces race to the bottom with zero royalty and zero fee offerings it puts the NFTX vaults at the edge of floor price ranges and requires larger price swings in collections before users or arb bots are enticed to use them. The kicker being that due to bid incentivisation for NFT liquidity on platforms such as Blur, it takes a lot more activity to move that price.
NFTX V3 solves for this by allowing users to set custom price ranges, but until that is launched I believe we should drastically decrease the current global fee settings to levels that are more inline with the NFT liquidity sector in 2023.
One of the lines of thinking has been “if fees are high it doesn’t require much activity to keep yields up”. We have seen whale LPs like FloorDAO continually reduce the fees of vaults like Milady, bringing spot price much closer to other marketplaces, which increases activity and therefore yield. This is also something that has been mentioned to us by an arbitrage bot maintainer. Quoted below:
However, there were 87 other opportunities for arb between
NFTXthat didn’t land, because transaction cost would negate any potential profit (or it’d actually lose on the arb). Looking quickly through those missed opportunities, I can already see another 10 being successful, if mint fee would be on average lower by 2% (eg. Goblins Vault has got mint fee of 4%, if it was 2%, 4 of those opportunities would go through, netting people who are LPing 2% of 4 mints - which obviously is more than 4% of 0 mints). If the aim is to maximise yield for liquidity providers, it is likely that by lowering fees, vaults would attract more volume generating better returns for LPs (kind of like smaller piece, of bigger cake)
I think the starting point for discussion is to cut by half, and assess for 30 days:
2% random redeem
3% target redeem
2% random swap
5% target swap
Any vaults that have set custom fees would not be affected. This change will only impact vaults that are using the defaults.
- Yes, reduce fees by 50%
- No, do not reduce fees
- Reduce fees by a different amount