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The DEX protocol revenue model emerging with @SushiSwap and @CurveFinance is not great
Sushi is taking 1/6 of LP swap fees, while Curve is leaving LP fees unchanged but adding an additional protocol swap fee for users on top
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Sushi is taking 1/6 of LP swap fees, while Curve is leaving LP fees unchanged but adding an additional protocol swap fee for users on top
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Both of these protocol swap fees will reduce LP yield - Sushi does this directly, while Curve's protocol fee should have this effect by reducing trade volumes at the margin
Fees that eat into yield compound over time, penalizing loyal LPs
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Fees that eat into yield compound over time, penalizing loyal LPs
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Instead of earning money from swap fees, AMM protocols should consider LP withdrawal fees (similar to the 0.5% fee to withdraw from @iearnfinance yVaults)
The fee structure has several advantages
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The fee structure has several advantages
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i) Withdrawal fees do NOT compound!
Short term LPs will be paying a relatively larger share of the protocols' total revenue
ii) Could reduce tactical LP behavior if the fee to exit exceeds impermanent loss avoided by dodging a market moving trade
LP frontrunning is toxic
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Short term LPs will be paying a relatively larger share of the protocols' total revenue
ii) Could reduce tactical LP behavior if the fee to exit exceeds impermanent loss avoided by dodging a market moving trade
LP frontrunning is toxic
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tl;dr
swap fees bad
withdrawal fees good
/fin
swap fees bad
withdrawal fees good
/fin
