XIP#18 - Switch recommended vault fees to become (semi-)dynamic

Proposals
1

Authors

ChopChop

Glossary

DAO

Fee Structure

Summary

This proposal is intended to switch up the current 10/5/10/5/10 fee structure of all non-customized vaults towards an 8/4/8/4/6 or 4/2/4/2/3 dynamic system, where fees are (currently manually) changed once floor prices move over 10 ETH per NFT for an extended (1 week) period. The result we’re aiming for is higher vault activity for both low(er) and high-value items, creating higher organic APRs for both liquidity and inventory providers. This follows the recent change to be made to the CryptoPunks vault.

Rationale

Since rolling out the second version of NFTX Protocol, we’ve recommended setting fees for new vaults at a 10/5/10/5/10 rate with the idea to optimize fees generated for liquidity & inventory providers. Since then, we’ve noticed that these fees are too high, especially for vaults in which the floor rapidly increases in value. This can cause some vaults to become less active, or worse - emptied due to low APR.

With the industry progressing as a whole, we’re witnessing a growth in use of aggregators such as Gem and Genie, in which NFTX currently reigns supreme when it comes to offering a large inventory to floor buyers at the lowest cost, except for higher-value NFT vaults (such as the CryptoPunks vault).

As it is key for vault participants to have internal volume (buys, sells, swaps), our primary goal is to optimize for this. The new fee recommendations should have the effect of our inventory surfacing to the top of products that integrate NFTX liquidity/inventory for both low and high-value vaults.

Effect

Opportunity

  • By working with a two-fee system we aim to decrease net price impacts for buying higher value items from an NFTX vault, causing the inventory to take a better position in listings on aggregators such as Gem & Genie.
  • Working with a two-fee system should increase long-term APRs on higher value vaults as they stay more relevant as floor value grows, by not “pricing out” our own inventory due to fees that are set too high relative to the items traded.

Risk

  • The two-fee system will start off as a manual process, causing some potential delays in fees switching between high/low.
  • As the use of aggregators is relatively new, we generally lack data to back up these recommendations. Changing fees can mostly be seen as an experiment until further vault usage data caused by integrations is available to us.

Specifications

If this proposal passes, we will switch the current recommended fees to:

  • 8/4/8/4/6% (Mints, Random Redeems, Targeted Redeems, Random Swaps, Targeted Swaps) for all vaults with a floor price under 10 ETH.
  • 4/2/4/2/3% (Mints, Random Redeems, Targeted Redeems, Random Swaps, Targeted Swaps) for all vaults with a floor price over 10 ETH for at least 1 week (average).

Vaults that have already customized away from recommended fees will not be changed if this proposal passes, and can only be changed by vault participants following this guide.

Funding request - No - Implementation Requires Funding

This request requires no funding.

Communication

Quorum (for forums)

  • Minimum Quorum: At least 5 votes
  • Passing Threshold: More than 50% must vote in agreement for the XIP to Pass. For changes to the NFTX contract, more than 70% must vote in agreement for the XIP to pass.
  • Yes, switch recommended fees
  • No

0 voters

2

Further to this there was a good suggestion from @Caps on the PUNK fee change post - XIP#17 - Update PUNK vault fees inline with new default fees - #3 by javery

The post is quoted below.

It’s becoming clear that aggregators are likely to drive larger and larger NFTX volumes. Our inventory will therefore be competing against the floor price of other platforms on these aggregators.

We can reduce our floor price and generate more visibility in aggregators by reducing the redeem (buy) fee. Decreasing the redeem fee will reduce yields for LPs and Inventory Providers (IPs), however this can be offset with an equal increase to the mint (sell) fee.

Proposed Alternative Structure

// Mint|Random Redeem|Target Redeem|Random Swap|Target Swap
// Default Fees
8/4/8/4/6 => 10/4/6/4/6
// PUNK Fees
4/2/4/2/3 => 5/2/3/2/3

In the above proposal, we decrease the target redeem fee by 2 percentage points and increase the mint fee by 2 percentage points.

By reducing the redeem fee we have greater exposure in aggregators, and by increasing the sell fee we capitalize on the relatively more inelastic demand of instant sell liquidity.

I think we should push this through as the stable recommended vaults as part of this prosal as well.

Thoughts?

2 Likes
3

+1 to that amendment from me. While looking minor, it might significantly increase inventory position on aggregators while equalizing LP/IP staking rewards through increasing sell fees.

1 Like