The current fee for minting or redeeming spot is 1%. This is the flow where a user mints SPOT directly using AMPL, and receives both SPOT and Z-tranches in return. This fee goes towards the SPOT collateral set, effectively enriching SPOT for all SPOT holders.
The current fee for flash minting or redeeming is 4%. This flow is where the user brings their AMPL to the stAMPL vault and receives solely SPOT in return. The 4% fee goes to stAMPL depositors, since the stAMPL vault is offering its liquidity to the flash minter as a service.
Importantly, the total end user fee for the flash flow is the sum of these, so 5%.
For more details on system fees, see the docs page here.
Proposal
This is a proposal to decrease the raw mint/burn fees from 1% to 0% and increase the flash mint/burn fees from 4% to 5%.
Impact
The primary way that SPOT is minted and redeemed today, is via this flash flow. The total fees for these users will remain unchanged at 5%. However, all the revenue from the flash flow will go towards the stAMPL depositors, rather than being shared with the SPOT collateral base. This provides more revenue for stakers.
Additionally, in times when the DR is below 1.0, the effect of a non-zero (purely additive) mint fee is that it counteracts the intended impacts of the enrichment and debasement curve. So this change should also, over the long run, help the system move back towards an equilibrium DR.
I am in favor of additional revenue going to Ampl stakers.
I think Ampl stakers take on a really huge risk to support Spot rotation liquidity, so I think this is a step in the right direction to incentivize stakers for the risk that they are taking on.
I am also in favor of this proposal. Seems like a good way for vault stakers to benefit more from the typical arb flow. Tranches are not easy to arb with so almost all of the volume goes to flash minting.
So I have been doing some tranching and flash redeeming recently, and I realized something while I was doing it.
The act of flash redeeming on the way up and flash minting on the way down skews the stAMPL multiplier away from the desirable effect for vault holders in each of those directions. However, that is often the ideal trade to take given AMPL supply continues to trend in that direction. On the way up, convert SPOT to AMPL, on the way down, convert AMPL to SPOT. This means the Vault holders are left with a less favorable tranche breakdown in each of these scenarios.
This got me thinking, has anyone suggested gradual fee structure for flash mints that incentivizes the vault to be at a particular rebase multiple? Similar to how DR affects enrichment, couldn’t we also have rebase multiplier affect flash mint/redeem fee rates? That would probably provide the counter force for keeping the vault in balance. The thing is instead of having the flash arb loop only require a fixed 5% spread on fmv during rapid expansion or rapid contraction, it can go up higher depending on how much the vault gets skewed towards Zs or not. It could increase the floor and ceiling price of possible SPOT arbs, at least in the short to medium term when the primary way to arb is with AMPL.
I think this should be possible to implement by calculating ahead of a flash mint/redeem what the resulting rebase multiplier will be, though I’m not sure how much gas it would increase flash mint/redeems by since it requires relative ratios of all Zs between each other. If we have a fee structure that lowers mint/redeem fees when the multiplier is closer to say. 1.25 or 1.3, then it would allow tighter arbs in the healthy state to keep SPOT closer to FMV instead of +5%. Conversely, if we do the opposite and increase redeem fees gradually as the multiplier is greater than 1.25, and then reduce mint fees as the multiplier is less than 1.25, then the market might start looking at arbing with the standard mint/redeem feature considering the 0% fee structure proposed above. This would be a correcting force for the rebase multiplier as well as providing more revenue for vault stakers when its more likely needed.
Currently it seems like the vault functions best as strangle strategy to take advantage of primarily sideways movements or slower supply growth. The DR/enrichment mechanism is good for regulating deposits, but it seems like there isn’t a strong enough way to counterbalance the flash mint/redeem feature skewing the rebase multiplier during longer periods of contraction or expansion. The proposal by @Brandon starts to address it but I’m not sure its going to be enough.
One way is–the vault depositors are making their capital available to swappers as a service, and charge a fee for doing so. People who deposit into the vault are naturally seeking higher exposure to AMPL supply changes. So for any operation that reduces that (or goes counter to the direction they’d like to be), it’s understandable for the stakers to ask a higher fee for it.
Another way is–The combined system uses the enrichment curve to help balance out demand between spot and stAMPL. This works over the course of weeks as rotations happen. Flash mints and redeems is a way for people to enter into one side quickly and this impacts the relative balance. It’s the primary source of pro-cyclical balance changes that we’ve observed so far. So it does makes sense for the flash fees to be a function of DR, just like rotation fees are. Maybe you could say the vault charges on the order of f(years) worth of the resulting enrichment/debasement or something similar.
The third aspect to keep in mind is that, since these flash mints&redeems are currently the most used pathway for new spot to be minted in the arb flow, the higher these fees are, the more volatile we would expect the SPOT price to be in the market. It would take a greater price deviation before that arb operation is profitable. So I generally like basing the swap fees on something that changes slowly (like DR?) rather than something that changes quickly. It gives more confidence in SPOT’s behavior in the market.
So that’s a long way of saying that, yes!, I do like your intuition of connecting swap fees with DR right now. It also happens that there’s already a version of this code in development that does this.
In the meantime, we can still make some small adjustments to the fees the system currently has. I’m hoping this proposal can handle the intermediate term until we get there.
After further consideration, I’d like to update the proposed fee settings as below:
Decrease the raw SPOT mint/burn fees from 1% to 0% (as originally proposed)
Decrease the flash mint fee from 4% to 2.5%
Increase the flash burn fee from 4% to 10%
Flash minting AMPL → SPOT increases the effective rebase multiplier on the stAMPL vault, which is generally inline with the goals of stakers. It’s the primary way of letting SPOT supply keep up with SPOT demand. It also helps put a floor on AMPL through the arb operations, if AMPL is shrinking faster than SPOT is.
Flash burning SPOT → AMPL decreases the rebase multiplier on the stAMPL vault, so it makes sense for the depositors to demand a higher price for using their assets in this operation. It can also help buffer any cascade of demand from above, which makes it a more resilient asset to build on top of.
I think this is a great compromise for now while you guys evaluate a dynamic fee structure using DR.
One point that @aalavandhan1894 helped me understanding discord is that DR is good heuristic for rebase multiplier because low DR means less AMPL sitting in the vault and therefore more Zs with lower C ratios and higher rebase multipliers. Whereas if there are extra deposits, redemptions, or positive rebases that increase the C ratio of Zs in the vault, that increases the total AMPL in the vault and reduces the multiplier.
