Positive Slippage Income

Research and Discussion
1

Hey Swappers!

I need all your brains

Context:

Following various discussions in the discord a proposal to improve the use of positive slippage has been stated:

More context here - but to summarize it would be to use positive slippage to buy ETH and redistribute it to the $PSP staker.
Several advantages here:

  • creates a real incentive to hold $PSP (becomes a productive asset)
  • prevents massive dumping of $PSP
  • possibility to choose another token to distribute to stakers

The problem now is to know if this solution is economically interesting.

Here is the wallet where the positive slippage fees have been collected for 62 days: here

And something very interesting, we notice that there are a lot of tokens, some of them with very small amounts but this raises several questions

Problematic:

Is it gas efficient to swap all the tokens for ETH?
A simulation of the viability of such a system would be appreciated.

Reflection track:

Maybe we can also make our tokens work? For example put our CRV/CVX and ETH in DeFi strategies. This would allow to increase the treasury making the protocol much more influential and in the long run better rewarding the stakers.

So there are many axis that we could explore, that’s why I call on all your brains, swappers :wink:

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2

We can make some coins work, but not all

I’m thinking in particular $SOS … a good decision taken in time would have given better gain, because (sorry for those who like this coin) itss clearly a shitcoin … if we had sold it quickly we would be at 4-5x what its worth today

Or coins that we don’t have enough to work with?

I think it would be necessary to wait for the decision on the budget, and to establish a kind of “specialized DAO” for the decisions to be taken on the coins obtained from the positive slippage

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I don’t know how is write the code but maybe if someone change USDC to shit coin , Paraswap can detect it and chose to take the positive slippage in USDC and not in shitcoin .I know some peoples swap directly Shitcoin A to shitcoin B. but in case of a people use a predefined List of token to swap a shit coin we can remove an part of token with a low balance in this contract
predefined list can be usdc , dai , usdt , eth , weth , crv ,cvx , wbtc…
what we can do with this money :

  • I think some of it can be used to create a DAO treasury. and with a good treasury, we can vote on protocols that integrate PSP or use Paraswap ( like ApyWwine )

  • Can help the core team to recruit new people to accelerate development

  • yes the redistribution of ethereum is a good idea . We can distribuate not directly Eth but an productif ETH like aEth or cEth

  • an implementation idea is check the value of a token and if the current supply is X times higher than the blockchain’s fees, we can swap an transfer to the redistribution contract .

ps: there are not all blockchain in this contract just on eth and bsc . if you have the polygon and Avalanche contract it can be an nice

Personally I think is important to allow an part of this money to the Paraswap DAO treasury . The other part is redistribute to sPSP holders. And allow the dao to block the swaping of a token if we want to increase the tresory by X token ( the goal is to get the token directly instead of swapping it for eth and reswapping for ther token ). if we want help the core team to pay an other developer we can do it by the treasury

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We are only talking of a few thousands usd per day. Not sure that will make any differences for stakers, especially if we consider gas fees to convert the small amounts … in my opinion we should better keep that treasury and put it at work with an automated rule like, if amount of token z greater than x than convert to Y.
The target token could be something strong like crv/cvx or even curve tripool … when the market will be in a better shape, we might have a nice few millions and voting power … thus affecting directly psp value …

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5

As of the time of writing, around 4M PSP are staked, with the average (not median) staker locking approximately 35k PSP. Even assuming a perfect rate of conversion and gas, I don’t think the ETH return would be strong enough to incentivise pure staking.

@CZhead 'd idea of putting the slippage to work could be interesting, since this could indirectly increase the value of the DAO, increasing thus the value of the DAO token… what that yield could be used for or which protocols to allocate it in is an entirely different matter.

Another alternative solution I want to propose is to maybe increase the selection criteria for this slippage income to reward stronger TVL? Maybe the longer assets are locked without unstaking requests, the better the rewards?

In either case, providing dual or more asset rewards is certianly an interesting idea, we just need to consider how this proposal would interact with other slippage dependent systems like referral.

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6

Your idea is very unique and it’s good too. I hope it works in favour of PSP ecosystem

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7

Allocating a percentage of positive slippage to the acquisition of crv/cvx could be an idea.

However, it would be nice to see if we can’t use the positive slippage to create something new of our own (like the gas refund).

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8

This is a great topic of research @Miaki, the positive slippage treasury can surely play a role in shaping the incentivization efficiency of the protocol.

A few thoughts/ideas based on the various comments:

Staking Rewards: I agree that the amount at stake is negligible. Based on the 70M PSP staked, a run-rate pre-market correction revenue of circa $200K per month (2.4M/year) doesn’t improve materially the stakers APY, meaning that you don’t change the incentive structure event if distributed in ETH (for small stakers, the amounts at too low to be claimable).
What can be done is to limit the distribution to “Level 4 NFT” Holders (see gas refund proposal here). If only 10-20% are eligible, then you 5-10x that APY. That would incentivize volume and staking from big players on the long run.

Market making: Not sure if this can be implemented, but considering the number of valueless tokens, could we consider proposing these tokens at sale during swaps for ETH/USDC at the best price like a market maker? This would avoid supporting the gas costs, increase the overall treasury, and reduce its volatility to market conditions. Eg. I swap ETH for VADER on Paraswap and the contract sells VADER it to me from the pos slippage treasury at the best market price.

PSP Buyback: I’m not a big fan of that idea. It’s well practiced in TradFi and I think it skews price signaling in markets as it artificially pumps up the price. It’s not a sustainable way to build demand for PSP in my opinion.

CVX: I also think part of the treasury should be used to build a CVX position with the launch of Curve V2 but the liquidity strategy has to be designed at the macro level. @tokenbrice has certainly reflected on this.

Future Capex: There’s the alternative, leave the treasury there (preferably in ETH/USDC) to fund future developments that can’t be funded by the company without additional fundraising. Having a war chest during adverse market conditions is often a condition for survival.

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  1. I don’t personally think stacking other protocol tokens is a good idea, we are not a stable coin platform so unless we build some other defi component it seems rather useless in my opinion.
  2. Buybacks face the problem that @sebastien-S3B made
  3. I think a revenue sharing model would be okay but I don’t think it should be a tiered system, we should strive to make yields equal to everyone on the network.

Overall I think leaving the treasury intact is the best model here though.

On another note, Paraswap took in nearly 6 BILLION Trade volume in the last 2 months. Why are we only getting 250K for this ? There should be atleast a small minimal fee rather than only positive slippage.

Here’s what I think we should do. Build out a tool like that of integral’s comparator to showcase our efficiency versus other aggregators:

Screen Shot 2022-01-24 at 12.36.02 PM
Screen Shot 2022-01-24 at 12.36.02 PM1102Ă—1328 125 KB

From here we could compare ourselves to other aggregators such as Matcha, 1inch, 0x. Rather than just take the positive trade slippage, we collect the price difference as profits minus a small amount to still put us at best price.

I also had a question for the team @Lup @tokenbrice, are we collecting anything from our private market makers ? The PSP model is based on the rebate model so if thats the way we are going we should be getting a cut for the trade volume we give, in the rebate model we are essentially supposed to be selling the volume, giving it away for free while at the same time gifting them 6-7% of our supply seems rather odd to me.

Building on the Idea I proposed above with us taking positive slippage compared to other aggregators, we could pass part of the cost of the aggregator slippage to the trader and part to the market maker.

I understand that a lot of our market makers are anonymous but could we perhaps get some input from them to see what they think is fair. @BenYorke maybe could weigh in from WOO’s perspective.

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your interventions are always superb
I learn more everyday
thanks to be here.

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11

I love your submission. And it’s a really good point to ask why we are not getting anything in return for our generosity to the PMM.

I understand that they help the protocol deliver better rate but what’s in it for the DAO?

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We’re not collecting any fees from MMs. I don’t think that adding a fee on top is a good approach since it will make paraswap less competitive vs other aggregator. We’re taking 15% from other partners fees as well as 50% PS.

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13

I think the PMMs should be paying a fee and would be keen to pursue that if the PMMs can say something to the effect, right now we are paying them huge sums for absolutely nothing, being a PMM on paraswap is actually a huge advantage to all these private market makers, market makers are supposed to pay for volume in the rebate model. until there is a fee applied PSP working with the rebate model is no more than theatrics.

as far as making us competitive vs aggregators, if we set up the positive slippage to be based on the difference between other aggregators like I proposed we would still be delivering best price.

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14

I had a thought, perhaps we could have a dynamic fee that varies on the PSP staked in each pool, more PSP in your PMM Pool lower the fee.

for example:

PMM Fee 0% - 0.50%, Varied on PSP Staked

  • PMM #1 - 0% Fee
  • PMM #2 & #3 - 0.10% Fee
  • PMM #4 - #6 - 0.25% Fee
  • PMM #7 & Below - 0.50% Fee

This would also serve the goal of trying to get PMMs to compete with each-other, PSP will naturally flow to the highest generating Pool.

These are just examples but this would have to be a conversation that involves the PMMs to gauge what is fair and competent in the market, at the end of the day the fees generated also partially go to them since they are PSP holders.

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15

I tend to agree with @Lup that a fee on PMMs might have undesirable consequences.
Paraswap has to sustainably attract deeper liquidity with improving MM strategies to guarantee the best prices over the long run. The fact that they’re getting proportionally better paid with increased volume is what we want to see: PSP inflation indirectly subsidizes better prices. Stakers are there to make sure PMMs are not rent seekers by introducing competition and are entirely dependent on their liquidity/volume to benefit from rewards. So introducing a fee on PMMs is I think a counterproductive friction.

Having said that, I agree with @Tenzent that competition can be improved between the PMMs and I’ve been thinking of a way to attract & secure MM liquidity across various market conditions while improving staking rewards. It is a separate topic of research and I’ll write something in the next couple of days on the forum to trigger some research.

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16

This all seems to the benefit of PMMs and Traders, there is barely a shred of value being afforded to PSP Stakers imho.

Over the course of 2 Months we have inflated the supply of PSP by over 30 Million, thats around 5 or 6 Million dollars of which around half I believe is being given to PMMs for free. Not only that but we are gifting them volume for free. I agree we do not want to make ourselves not as competitive but there has to be a balancing act between Traders, Stakers, and Market Makers. I would honestly say that any fee on a PMM wouldn’t make us at all less competitive since we are the only aggregator with an extra market making mechanic built on top, if the PMMs are forced to not have best price because of a fee that still leaves us at equal footing with other aggregators.

Currently,

  • Traders get the absolute Best Prices on all networks.
  • Private Market Makers get Millions of Dollars in PSP without the need for any exposure, as well as Billions of Dollars in Orders.
  • Stakers get all or part of the extremely minimal trade slippage.

What needs to happen in my opinion is one of the following things:

  • Pass a small fee on to the trader.
  • Pass a small fee on to the PMM
  • Make PSP a crucial element to being/becoming a PMM.
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Ben from PMM Pool 9 here. This is an interesting discussion, and do note that I come from a position of bias, but probably should add a few points:

  • These changes are good for the PSP token, but maybe not the protocol.
  • MMs quoting on an RFQ will always find the sweet spot between flow and spread to maximize profitability within their risk framework. We are already competing internally against other PMMs and externally against other aggregators, so there is a big incentive to quote competitively.
  • If the protocol adds a fee, MMs will just widen the spread to reflect the change. The protocol will make more, but the price execution on ParaSwap will suffer compared to other aggregators. As it stands, 1inch and Matcha hold a significant marketshare advantage. From a ParaSwap token holder perspective, we want to cut into that by improving our prices and attracting more platform-neutral flow. Lot’s of room for growth, which should be encouraging.
    image
    image756Ă—298 36.6 KB

    source: Dune Analytics
  • PSP rewards for PMMs are subsidizing flow, helping PMMs quote tighter and outcompete others. If you add a fee, its like taxing someone and then giving a rebate. You’d be better off just removing the subsidy, but that may have unintended effects.
  • the result you are talking about is optimizing the platform for revenue, not performance. From a general growth perspective, that’s usually the wrong way of thinking about it. Make margins small as possible until you’ve achieved some moat around your protocol and can optimize revenues in other ways.

Just read back up and @sebastien-S3B makes some of these points already. As an ecosystem, we should explore all options, including gamification/tokenomics tweaks, before we just make the most obvious changes (Raise the fees!).

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18

Loving the discussion that is going on here! This is definitely a tricky topic to address, and thank you @BenYorke for stepping in with your thoughts, it’s very interesting to hear the thoughts from a PMM!

Considering that our key market advantage is to give the best bang for buck to traders, it’s going to be challenging finding revenue streams without harming the protocol efficiency itself. Personally, out of all the solutions discussed so far I really enjoy @Tenzent 's idea of making PSP a crucial element to becoming a PMM.

Since adding a per-trade fee on either traders or the PMM is going to end up harming the protocol, one small addition that could be introduced could be having to pay a certain amount of PSP to be listed as a PMM in the future? Honestly , I am very unsure about all this, but it’s true that as it currently stands, the Staking module is functioning basically as a gigantic Liquidity Mining program, and unless we give PMM’s reasons to keep/reinvest their token, they’ll liquidate them into profits as soon as the funds unlock.

Since the conversation is starting to drift away from the original topic (Positive Slippage allocation), should we maybe move the discussion of PMM’s to a different thread? I think both topics are very important and deserve a spotlight of their own!

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Hi , even if the PMM discution is very interesting ! I would like to refocus the debate on : positive slippage income :money_mouth_face:
I have read the feedback on this proposal. with all the elements I make a summary chart

positive income summury
positive income summury567Ă—754 16.5 KB

I split this reflection into three main parts :

  • conversion method ?
  • which tokens ?
  • what we do with news tokens ?

To make a proposal for this subject we must do it in 2 or 3 times. We must now focus on the first 2 questions :conversion method and which tokens

About the conversion method
above all , every tokens are not interesting to change : as to propose in PSP-BP-1-3 " curve war cvx " if we want accumulates some tokens . So we have to keep the tokens recovered from the positive slippage Income. to Do that I suggest to create a whitelist of tokens ( if a token is put here by a proposal , the rules about swaping methode is not applied)

you can’t swap every tokens into X token because as you know make a swap cost ETH ( 25$-200$ ) in function of gas price. So we need to etablish rules to make smart swaps :

  • from what amount in $ we can swap tokens ?
  • how often ? as soon as the value is XXX $ , every epoche , every month …

about the destination token
Here we have some choices : you can chose productive tokens or not. In the simple tokens that came back there are : ETH , PSP , CVX , USDC and in defi token there are : ETH/USDC , Tricrypto : ( ETH-BTC-USDT) , PSP/ETH .

My idea is to quickly build a mechanism so that income is no longer correlated to shitscoins.

Note that over 13 days the revenues have increased by 80-90 k$ good job Paraswap! ( ~290k$ → ~380k$ )

please vote on Poll , we need your opinion

create a white list for the tokens to exlude from the swap mechanism

  • YES
  • NO

0 voters

Minimal amount in $ to make a swap

  • 1000 $
  • 2500 $
  • 5000 $
  • 10 000 $

0 voters

How often we need to swap tokens ?

  • when the amount is XXX$
  • each epoch/2 ( 7D)
  • each epoch ( 14D)
  • each 2 epoch ( 28D )

0 voters

we have to exchange the tokens into productive tokens

  • YES
  • NO

0 voters

in which token ?

  • ETH
  • PSP
  • Stable coin ( USDC / DAI / RAI … )
  • CVX
  • LP ETH/USDC
  • LP tricrypto ( BTC/ETH/USDT)
  • LP PSP/ETH
  • lending AETH ( Aave ETH )
  • lending stable coin

0 voters

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Very good summary and initiative!

Making a token whitelist that we keep from positive slippage is very important.

Then it will be very simple to establish a strategy according to the assets.
The advantage is that it will be very simple to vote to remove or add tokens to this whitelist.

The advantage is always to generate income without inducing a selling pressure of the $PSP.

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