There are two parameters I’d like to propose we change about the ICX-queue
1.) The current fee of 1% hurts the peg of bnUSD. With the sICX/bnUSD pool have the most liquidity, it is also the most impactful on the value of 1 bnUSD. I’d like to propose we lower the fee to 0.6% in order to incentivize more arbitrage trading on that pool.
2.) The current fee split of that pool between LPs and the Balanced Fee Pool is 70/30, LPs/Fee Pool. All other pools are a 50/50 split, and to be honest I can’t remember any particular reason we chose 70/30 as the initial parameter. Nonetheless, I’d like to propose we change the fee split to 50/50 to conform with all other pools. There’s no particular reason to give this pool some unique treatment.
This proposal will ideally lead to a tighter bnUSD peg, more arbitrage trading, and more volume on the ICX-queue, which is generally good for those that provide there (faster churn = faster profits).
EDIT: Decided to remove the first action-item based on feedback
This pool is a bit different from the other pools, and deserves a higher fee. I also am not currently supplying to it, it isn’t a profit motivated opinion. Here’s my thought process why I think so:
ICX is a very liquid asset. You can turn it into dollars or USDT pretty quickly on a centralized exchange. sICX can be unstaked to ICX, but takes a varying amount of time to do so (minutes to days, iirc). When someone wants to get back to dollars, you are buying their risk/volatility in the price of the asset.
I think the fairest way to determine what it is sold for would be a variable fee based on the volatility of the asset and/or the unstake time (this is sometimes correlated with volatility in the asset, as well). If you wanted to stop the fees from getting out of hand, they could be capped at some maximum.
Additionally, the pools have a different dynamic given by the constant product. A user can’t transact near the full balance of the pool without a lot of slippage. The ICX queue is updated by an oracle price relatively quickly, but when there’s large price changes it will trail the true price. There isn’t slippage. LPs of the pool can be on the hook for as much ICX as the trader wants to transact, until the next price update. That said, I don’t think a constant product pool would be appropriate for this type of transaction, and the queue structure is better.
The fees are a bit expensive right now, but when the market is in turmoil, they are quite cheap. When the market drops 15% in the withdraw period, a 1% fee is a bargain. I don’t think it’s bad to lower fees when the volatility is low, but when it goes wild the risk takers should be appropriately compensated, and fees raised.
In my opinion we should make some adjustments to the ICX-Queue, but not this exact change.
I’ll start with my suggestion, which is to make the fee split 50/50 just like other LPs, but keep the 1%.
First off, I do think decreasing the fee will in fact increase volume, but only by a small amount. Taking extreme examples, if ICX moves only in 10% increments, the fee reduction barely changes the volume, while conversely if ICX makes constant tiny micro movments that were previously too small to arb for, then the volume will increase a lot.
In scenario as proposed:
Balanced will be earning 0.3% of the trade, the same percentage as before on a slightly higher volume.
Liquidity providers will be earning 0.3% of the trade, a ~57% reduction from the 0.7% they were receiving before, on a slightly higher volume.
If we only make the split 50/50 at a 1% fee:
Balanced makes 0.5% on the same volume as now, an increase of 40%.
Liquidity providers make 0.5% on the same volume as now, a decrease of ~28%
Now there can easily be parties arguing that any reduction to the LP is no go, but assuming choosing between one of the 2 I think most would choose the second.
For bBALN stakers, a guranteed increase of 40% over current levels, versus an unknown and hard to quantify increase in volume, I think the 40% is preferred.
Outside of economic concern the other points I wanted to highlight are:
Regardless of total fee, having this one single queue be not 50/50 when every other LP is is just needlessly confusing/complex.
Being based on ICX we are naturally citizens of the ecosystem, I feel having an instant unstake be too cheap somehow undermines staking too much. Of course this doesn’t really matter and if providing this service was profitable someone else would do it if we didn’t. But I guess I am saying there is no need to race to the bottom.
EDIT: Want to specifically call out, also agree with everything mentioned by @penne_options and really appreciate that angle.
Thanks @arch and @penne_options for your thoughts. After thinking it through and considering your perspectives, I think that, for now, we should ONLY normalize the pool fee (change to 50/50), but leave the total fee (1%) untouched.