Proposal to update SPOT's Fees and Rollover Rewards

Ensuring timely rollovers is critical for the stability of the SPOT system, as it insulates SPOT from supply fluctuations. To encourage this, the system offers a yearly percentage-based reward to rollover vault LPs who dedicate their AMPL for this network task. The system funds these rollovers primarily through reserve fees collected during SPOT minting or redeeming. If reserve fees are exhausted, a k% constant rate debasement is applied.

Before determining the appropriate fee, we need to understand the SPOT system’s users and how fees might impact SPOT and user behavior. Market actors who conduct arbitrage to align AMPL and SPOT prices are the predominant users minting/redeeming SPOT.

When SPOT is backed by new and senior AMPL tranches, its value should approximate 1 future AMPL (i.e., AMPL at the price target), subject to a time discount to hold the tranches till maturity. Arbitrageurs might do the following:

1. If SPOT price >> AMPL price, they purchase AMPL, 
   mint SPOT, and sell it to profit from the value difference.
2. If SPOT price << AMPL price, they purchase SPOT, 
   redeem for AMPL tranches, and profit from the value difference.

Imposing a tax on this arbitrage activity (via mint/redeem fees) can support the public good of sustaining rollovers. A high tax might decrease arbitrage activity and lead to higher SPOT/AMPL price deviations. For instance, with a 5% mint and redeem fee, SPOT and AMPL prices must deviate by at least 5% to trigger arbitrage. Any deviations below 5% would be absorbed by AMMs and market participants. In general this should play out as lower correlation between SPOT and AMPL, as SPOT should in theory spend more time in steady state (within 5% deviation).

And say we set the fees to 0%, any deviation in SPOT/AMPL market prices will trigger arbitrage, this will result in higher correlation between SPOT and AMPL, and maybe introduce more volatility into both assets. Alternatively a fee percentage which is very high (say 25%), might just break the assumptions around how SPOT should be valued and also make the system unusable.

Comparably, the Ampleforth protocol views a 5% AMPL price deviation from the target as significant enough to initiate a supply correction. Given SPOT’s lower price volatility compared to AMPL, a fee lower than 5% seems reasonable. Though lending isn’t the primary driver of SPOT demand, if we look at comparable lending protocols like Liquity they charge an up font fee up to 2.5% for borrowing against ETH.

In any case, there is no free lunch. We either charge higher fees up front or SPOT holders eventually pay through debasement. I personally lean toward the former.

I propose a 2.5% mint and redeem fee for SPOT.

Regarding rollover reward rates or SPOT debasement, if SPOT aims to be a competitive inflation-resistant store of value (SOV), its debasement should ideally be lower than current fiat alternatives. The Federal Reserve targets a 2% annual inflation rate. Therefore, to stay competitive, SPOT’s debasement should match or undercut this rate. Rollover vault LPs need to be compensated for providing rollover capital for a long period of time. For most long-term AMPL holders, being an LP is strictly better as they earn a yield on their AMPL. The yield should be high enough to make it worth their while.

I propose a 1% annual reward rate.

One important consideration here and going forward, is to come up with parameters we are comfortable being immutable. Being “smart” and making these parameters reflexive (ie dependent on the current state of the market) might be tempting. However any reflexive system can leak value to traders with more information. I strongly feel we should reject those temptations in favor of a “dumb” system with immutable rules.


Numbers look good.

The way I make sense of this is through this metaphor:

Rollovers happen every week - ignition is keyed in once per week. So 1% of total SPOT in circulation at the time of Rollover will be rewarded to the Agents performing that Action?

Regarding immutability, I wonder if we should revisit after this has been played out in the market. Similar to the Tranche ratios. Or perhaps the K% Rollover can be locked in for some predetermined epoch of time.

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@Bhau can you imagine if Satoshi had decided to leave the BTC supply cap unfixed and open to manipulation, the way you’re suggesting? We’ve already seen what happens if the issuance is not fixed - we get “ultrasound” money.

Immutability at this stage is the safe way forward. It’ll be irreversible, and we’ll prevent Pandora’s box from opening.

But I can see where you’re coming from - can you imagine if the AMPL rebase parameters were immutably configured from the beginning? Hard to see how SPOT could have been designed in that scenario.

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@Degen_Autist Good points, thanks. I’m well aware the vault designers have likely determined what may be optimal parameters for such a launch.

Just opening this up for discussion.

I think this is a good starting point for the rates. They can always be adjusted later if necessary after some feedback from the market. I am in favor of this proposal.


Just wanted to clarify my example about arbitrage. I meant to say “value of collateral” not AMPL price. The expected value of the collateral (when tranches are fresh and fully collateralized) is the AMPL price target.

1. If SPOT price >> (value of collateral), they purchase AMPL, 
   mint SPOT, and sell it to profit from the value difference.
2. If SPOT price << (value of collateral), they purchase SPOT, 
   redeem for AMPL tranches, and profit from the value difference.

SPOT’s mint and redeem history shows that 1,104,365.67 SPOT has been minted or redeemed so far. At 2.5% this is 27,609.14 SPOT in fees.

The current SPOT supply is 805,697.64. At 1% the annual reward is 8,056.98 SPOT.

The mint and redeem activity has been slowing down in the last 6 months. This may be a cause for concern, but I think the proposed fees are enough to cover the rewards for a while more before SPOT starts to debase.

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Thanks for the feedback. Kicking off the snapshot vote.

With the snapshot completed will this move to an on-chain tally vote? @aalavandhan1894

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