AIP 34: Rebate Incentives feature implementation

Summary

Goal is to increase the trading volumes and to attract new makers and integrations to the AirSwap protocol. The proposal is to empower coordinators to selectively run rebate programs and onboarding packages for makers and integrations case by case in the interest of meeting volume targets.

Specification

  • Any rebate proposed should be presented by the coordinators in the written way (Google Docs etc) and published in the members only channel in the Discord and/or Notion. Each rebate/incentive package must be voted on by the AirSwap community via a configuration vote.
  • In that case the rebate amount could be selected by community config weighted voting with multiple choices for every rebate.
  • 3 days are given for community discussion, if an agreement has been reached with the community Rebate proposal could be moved to vote for 24h.
  • After the vote is done rebate/incentive package could be moved to discuss with target maker/aggregator.
  • If the final agreement has been reached during this time, Rebate proposal could be implemented ASAP otherwise sent for revision for the next 3 days.

Example 1

The example of how AirSwap is going with MM and why do we need rebates:

  1. MM charges 0.875% anyway from each trade
  2. So each DEX should adopt and consider that each trade done on their platform will additionally charge 0.875% so the platform should adopt its fee to stay competitive
  3. AirSwap prepaid fee to the MM (on some volume) and was charging 0.3% from each trade, which was 0.575% more competitive in relation to other DEXes which allowed makers to take that difference of <0.575% as profits
  4. Now AirSwap fee was reduced to 0.07% so there is almost no window for the makers now, thats why volumes and fees have dropped.

Example 2

Rebate proposition could consist:

  1. Onboarding stimuli
  • This would be an acknowledgement of the effort taken to get a server up and running, and serving orders. This could be split into two components:
    • [Fixed amount] provided at least [X] swaps (number, not value) are served in [onboarding period].
    • [Variable amount] based on $ volume over the most recent [measurement period] (could be removed and replaced with performance incentive below).
    • Example with numbers
  1. Performance incentives
  • Intended to reward reliability and/or performance. Any of the following:
    • Fixed payment for server uptime, e.g. 99.99% → [10k AST] per month
    • Payment for average daily volume volume given a [threshold] is met, e.g:
      • 0 - [$500k] → 0
      • [$500k+] → 0.035%

Notes:

  • The onus would be on the Makers to keep a log of all successful transactions in an agreed format that would allow us to verify $ values.
  • Similarly uptime would need to be provided by makers based from an agreed third party service
  • All payments could be determined whether makers or integrators would accept sAST (staked AST) or AST tokens with conversion from $ value done at the time of payment, or done in other way.
  • The success of this system depends on attracting and keeping makers, so there is a balance to be struck between making the incentives attractive, but not so attractive that makers would come for the onboarding incentives then leave once they finish.
  • I am assuming that paying retrospectively avoids the MetaMask fee increase effect when the incentives end.

Credits

Thanks to greypixel, astholder, agrimony, Justin, Don, zzew12 and Schalla for their contributions to this AIP

Copyright — All proposals are public domain via CC0.

If I understand correctly, you’re asking to prepay a changing fraction of the fees, but leave the AirSwap protocol signerFee at 13 (which is the new value).

The desired result is that makers can produce more competitive quotes whilst maintaining the same margins/profit (wrong terminology probably) in their pricing logic because the end user would be paying the following fees for a MetaMask swap:

  • 0.703% (0.743 + 0.13 - 0.17)
  • 0.759% (0.743 + 0.13 - 0.114)
  • 0.857% (0.743 + 0.13 - 0.056)
  • 0.873% (current)

I’m currently against this proposal for multiple reasons:

  1. We still end up in the same situation, it just takes longer, and costs more money to get there. I can’t see the benefit of effectively paying to artificially inflate the volume as a vanity figure. We’ll also have a weird looking volume trend with step changes every 3 weeks. I agree that trade volume is an important success metric, but I disagree that the solution is to feign success by trying to boost the volume by throwing money at it.

  2. I believe there are far better uses for the treasury funds. This suggestion is spending $1 and getting $1 value back. Building the web app, working on attracting more makers, and takers / integrations, all of which take time and money will produce multiple dollars of value for each dollar spent. $235,600 over 2 months is a lot of money when you compare it with developer salaries, for example

  3. It’s complicated and requires MetaMask to implement. Fractional top-up of the fees requires co-ordination with MetaMask - they need to reduce their fees by the top up amount each voting cycle. This sounds complicated and requires effort from their side for zero gain. I can’t see them buying into this idea. Makers would also need to co-ordinate or lose trade volume.

I could potentially have seen a benefit of this if we had the ramp down implemented before all this happened, but now we’ve had the band aid ripped off, let’s not put it back on just to peel it off a bit more slowly.

3 Likes
  1. We still end up in the same situation, it just takes longer, and costs more money to get there.
    We already did in before and nobody was upset, why would we be opposite to it now? From our experience it was a good practice and everyone was happy.
  2. I believe there are far better uses for the treasury funds. I think is is already a good use.
    What was the treasury created for? Are there some specific criteria? No, community should decide it through voting. That is not even 1% of the treasury total supply.
  3. It’s complicated and requires MetaMask to implement.
    The same answer as at the first thought.
2 Likes

Thanks for the proposal @VladislavW. I understand the frustration with the volume/fee decrease. Initially when I read your proposal I was intending to write a long diatribe about how I understand the frustration but disagree with your solutions and premise. However I think @greypixel does a good job of summarizing why I think your proposal takes us in the wrong direction.

Instead I will mention that AST is a governance/utility type of token. It’s not really geared towards stable rewards generation - that’s not its purpose. I would argue that AST is more like a membership card which lets you participate in governance.

You state, “This has caused a few ripples because it would have been hard for “investors” (i.e. those who purchase and stake AST) to know about this upcoming change, which could be viewed as predictable and critical to inform how much to stake/risk, and who will have seen their return on investment potential significantly drop overnight.” I understand the frustration but I don’t view AST as an investment in that way.

If you ‘invest’ in AST expecting consistent returns then you’ve missed the core utility of the token. You are rewarded for your vote. It’s not passive income or interest. In my view your “return on investment potential.” has not dropped at all. The investment potential of AST is in governance voting and you can still do that just the same as before.

2 Likes

I agree with astholders and graypixel that this proposal does not work in the benefit of airswap.

Airswap has carefully told its stakers about their governance token. It is up to the stakers to think this is an investment.Airswap is not responsible for such thoughts or actions of individuals. It should focus on improving its products and revenue.

Recent event happened suddenly and problems were identified and solutions have been proposed to solve them. We don’t want to solely rely on MM and definitely do not want to use our money to buy volumes at a loss for airswap just to have more fee for stakers to claim against.

We should vote on solutions that generate revenue, not losing money. I mean revenue and not just volume. I don’t want volume when it costs more money than the revenue it brings in.

3 Likes

Is there a specific rationale for the 0.17% maker rebate? I had originally thought that you wanted to propose compensating this to stakers for the shortfall in fees (0.3 - 0.13). Now that I understand it is to help the makers, I would like to understand more about your rationale for these numbers (rebate percentage and time length), and how you see its value proposition for the long term.

Basically, you are asking to use $427k from the treasury. What makes you certain that this expense would enable us to recoup more than $427k in fees for AirSwap in the future?

2 Likes

A few thoughts:

  1. The implementations of subsidize need not follow the proposed schedule.

A) It could be tranche system/step function, as described. This has the benefit of predictability, but is limited in versatility and attractiveness to new Makers.

B) It could be a rolling, retroactive, subsidy. We make it clear to the makers that their trades will be subsidized so long as they are achieving good volume. We then, on a weekly/daily/hourly schedule, calculate their subsidies and send them batch AST

C) My favorite. We have a subsidy packet for all new Makers (including the two we have now). This package is distributed to them as they facilitate trades. The package could be designed off our best maker, to provide a cushion for their spread until they have used the full amount.
----- This has the advantage of not only helping our current Makers, but being attractive to incentivize new Makers to start using Airswap. It also delivers AST into the Makers wallet, allowing them to potentially become market makers for AST swaps. Finally, by providing Makers with AST earlier on in their journey with Airswap, they could become vested in the success of the project as a whole.

  1. There seems to be a concern that by subsidizing Makers to increase their volume, we will just end up where we are today, after spending more money. I believe this is a flawed conclusion. The purpose of the subsidize is to build and increase longterm volume through Airswap. The subsidies will afford Makers to increase volume through AST, making it worth their while to dedicate the resources required to run an Airswap node, and critically, keep it running 24/7. By putting the effort to make an effective node, up front, we increase the likelihood they will continue running an effective node over time. We could also add penalties, in the subsidize, for downtime – incentivizing Makers to build reliable strategies for maintaining uptime. This strategy could create a group of Makers that build a reliable income source, attractive to their LPs, that they will not want to give up.
    Right now, we have a sudden loss of margin for Makers; however, regardless of whether Airswap takes the fee hit, or Makers take a fee hit, the whole proposition of running more Airswap nodes is suddenly less attractive. Even if we did not just experience a tragic loss in volume, this strategy would be beneficial for making Airswap more competitive and attractive to Makers and Swappers.

  2. I believe a course of action is aligned with the long term horizon for Airswap growth and RFQ dominance. The goal would be to partially subsidize Makers sufficiently to allow them to out compete AMM dexes in MM. Spending AST to boost our volumes is not a shortterm play to boost our personal pool rewards. The strategy of eating costs, with $$ from treasury or bank, is critical to blitz scaling. This is a practice done by most of the successful tech companies of the last decade. Amazon, subsidizing shipping costs. Zappos subsidizing returns. Robinhood, subsidizing consumer trades. Sushiswap, Bancor, Uniswap, Alpha, ect… subsidizing liquidity providers. Aave & Compound subsidizing lenders.

The practice of using native tokens to sweeten the deal for critical potential users has been proven effective, time and time again. The goal is always to stop doing the subsidization eventually. However, when creating a trajectory towards relevant and attractive growth, spending money early to get loyal and eager consumers and meaningful growth is a successful strategy.

  1. I argue strongly against the notion that AST is merely a governance/utility token – that it should not be geared towards generating cashflow for holders. In what way does it benefit the project for AST to lose one of its greatest benefits? DeFi is all about generating cashflow. This isn’t a new idea – it is old. Stocks which paid dividend to their holders, on a quarterly basis, dominated the NYSE for decades. Having sAST being an active, engagement dependent, cashflow asset was a brilliant and effective strategy for attracting longterm investors. Discounting the importance of this aspect is to disregard huge swaths of important community members and investors.

Airswap is a triple sided marketplace. Whereas Uni, Sushi, BNT need only subsidize liquidity providers to grow their pools to benefit swappers — AST needs to satisfy AST holders, Makers, and Swappers. AST has two sets of customers, and a set of governors/investors. Subsidizing the Makers benefits all 3 parties and paves a path forward to continue growing volume, rather than having to drop to levels from 2 months ago, and spend the next 3-6months just trying to get back to where we were a week ago.

Uni would likely not have become the major success, had it not rewarded its users with tokens from the treasury, creating an army of loyal stakeholders.
Sushi would not be the #2 DEX were it not sweetening all its pools by rewarding LPs with extra tokens.
Bancor would be entirely impossible were it not subsidizing impermanent loss with BNT.
Compund would have far fewer lenders if their APY was not cushioned with COMP tokens.

The best mechanism for subsidization is worth further discussion and deliberation.

The idea that subsidization is merely a short mechanism to pay sAST holders further rewards, only to forestall the inevitable, lacks the vision required to blitz scale growth.

The DeFi boom and bullmarket is, one way or another, a limited time opportunity. It does not make sense, to me, to forgo massive potential growth during a critical time period, to maintain a very large treasury of tokens that are only valuable if Airswap captures more and more marketshare in an extremely competitive space.

2 Likes
  1. Is there a specific rationale for the 0.17% maker rebate?

Thanks greypixel for calculations.

The desired result is that makers can produce more competitive quotes whilst maintaining the same margins/profit (wrong terminology probably) in their pricing logic because the end user would be paying the following fees for a MetaMask swap:

  • 0.703% (0.743 + 0.13 - 0.17)
  • 0.759% (0.743 + 0.13 - 0.114)
  • 0.857% (0.743 + 0.13 - 0.056)
  • 0.873% (current)
  1. Timelines:
    Three voting cycles (2.5 months) should be enough for the start. During that time we have to launch new web app and attract new cheaper takers, as the result volumes should grow and we will reach numbers same or nearly the same numbers in fees and much bigger numbers in volumes that we have before the end of subsidization. $126M volumes where calculated according to the average daily volume ($6M) we had.

  2. Value for the long term that i personally see is:

  • List item
  1. Good reputation fo the AirSwap and the team. Current volumes/fees drop that we had is not the best event for the protocol. For a side view that presents AirSwap as not unstable and unreliable project to join, if there is the chance of everything stops at the moment without warning and after that, just put everyone in front of the fact that now everything will be different, and you must measure yourself is not the good deal. People should see that even if things gone wrong everyones voice matter and anyone can change it.
  2. AirSwap recognition.
    People never talk about projects that generates small volumes, everyone is talking about project with the top volumes. As we have seen a few days ago AirSwap was really able to compete even 1inch, doing the same daily volumes through MM. But we where at the top for a very short time, if we would hold out there at list 1 month, people and other aggregators would start to recognize AirSwap and as the result we would a attract new community members, makers and takers.
  3. All this shall help to recoup more than we will spent in fees for AirSwap in the future. In any case those funds are not going to disappear, that are doing to be used to support protocol and will be distributed to it’s contributors.
  4. And sure totally agree with all justin thoughts above.

I’m not opposed to performance based incentives for high quality market makers. Given our model - a limited number of high quality market makers providing RFQ services - there is a risk that if a market maker goes offline for some reason then volume is significantly impacted. Having incentives rewarding uptime/availability in conjunction with volume could be a way to mitigate against maker downtime risk.

We had been discussing recently whether to include in AIP 26 a mechanism to use a portion of the smaller rewards pools to fun a ‘war chest’ to possibly cover the costs of things like this.

I can also see how a ‘maker onboarding package’ would help tempt market makers to our product. I’m not completely against this idea either. But I think this should be reserved for strategic/high value partnerships and assessed on a case-by-case basis.

However, I think AST in the treasury should be used as sparingly as possible. Maybe a good compromise would be to use points instead? Ie. Makers earn points based on their uptime and volume. A maker onboarding package could be based on points as well… or some combination of both…

Yes I understand the calculations but I would like to know why specifically you chose 0.17 and not 0.25 or some other number? Seems rather arbitrary to me and would like to know more.

So for example, why do you think 0703% total fees puts us at an optimum spot? If volume and the network effect (because of reduced fees) is what you are after, instead of subsidising the maker, we could also temporarily remove or reduce the AirSwap fees which would bring us down to 0.743%. So you would have to justify why subsidising using AST would be more beneficial in this case.

I guess we can’t 100% predict the volumes but which we will get relative to the percentage provided as a subsidy and we have to experiment.
I would like to update my calculations a bit according the math i did recently:

  1. MM charges 0.875% anyway from each trade (for AirSwap it is 0.743%)
  2. So each DEX should adopt and consider that each trade done on their platform will additionally charge 0.875% so the platform should adopt its fee to stay competitive
  3. AirSwap has the option to set 0.13% fee so that would be 0.875% total MM fee (other platforms should set 0% to reach the same fee level)
  4. AirSwap prepaid 0.743% fee to the MM (on some volume) and was charging 0.3% from each trade, which was 0.575% more competitive in relation to other DEXes My first question here: Why didn’t AirSwap set the fee to 0.4% or even 0.5% if the trades would still stay competitive? I suppose that is because makers took that difference of <0.575%
  5. Now MM charges 0.743% from all AirSwap trades and AirSwap fee was reduced to 0.13% so there is 0.875% (same as 0% fee for other DEXes) and there is 0% window for the makers now. Thats why volumes have dropped, because makers don’t have any “fee window” now

If so makes sense to:

  1. Ask MM to add 0% slippage option
  2. Reduce AirSwap fee to 0.1% or less
  3. Subsidize makers some % with AST to help them make more competitive prices and win more trades

Generally i would like propose the following:

  1. Reduce AirSwap fee to 0.1% (it will help us our makers to have additional fee window with 0.843% fee total compared to 0.875%+ our closest competitors)
  2. Subsidize our makers with AST from the AST treasury with the easy configurable value. I propose to that that amount to 0.143 (it is 0.7% of total fee compared to 0.875%+ our closest competitors which is 0.175% window for our makers to make more competitive and profitable trades) for start and watch how the things are going for 1 week.
  3. As the next step the AirSwap protocol fee and rebates amount should be easy configurable to help us strike the best possible balance between rebates, volume, and fees
  1. Ask MM to add 0% slippage option
  • I’ve mentioned this in the design suggestions channel on discord, but I will re-iterate here because I believe it to be very important: adding a 0% slippage option on its own does not necessarily mean RFQ will be selected more often.
    • Further explanation For an AMM, slippage tolerance does not affect the "quote" you receive, only the acceptable difference between the quote and the number of tokens you actually receive if the market moves between the time that you're served the quote, and when your transaction is mined. Therefore if MetaMask did not also update its selection algorithm, it would most likely result in more transactions failing, and an exodus of users from MetaMask.
    • We should therefore also suggest that selecting 0% slippage tolerance either completely removes AMMs, or both deprioritises AMMs during quote selection, and displays a very clear warning in the UI if the user goes to manually choose a quote.
  • My suspicion is that many MetaMask users are unaware of slippage tolerance, and of those who are aware, few actually understand exactly what it means. I have doubts over how many people would click it.
    • Justification I have this opinion because I believe those who think and care about slippage tolerance are generally those looking to ensure they are achieving an efficient/good value trade. I think if they were looking with this level of detail they would most likely not use MetaMask due to the 0.875% transaction fees that could be easily avoided by going to the DEXes directly.
    • A good point of reference would be to ask MetaMask what % of their users have adjusted default slippage tolerance already.
    • An alternative option would be to suggest always displaying an RFQ quote, which in the case of a more “competitive” AMM quote would mean showing two. We could suggest that the RFQ quote was shown as a ‘guaranteed price’ and perhaps a ‘low chance of failure’, compared with the AMM which shows the price range of tokens that may be received with the text ‘higher change of failure’ (or similar).
    • EDIT: the other alternative would be to flat out ask MetaMask to default to preferring RFQ. I assume this is not likely but I have no idea.
  1. Reduce AirSwap fee to 0.1% or less
  • I prefer this option to directly paying for volume from the treasury, however I still feel it may be too early to jump to this conclusion. Is there a reason our makers can’t quote competitively despite the level playing field of fees across MetaMask providers? In fact we have a very slight advantage currently.
  1. Subsidize makers some % with AST to help them make more competitive prices and win more trades
  • Same point as above (is this really necessary for competitive quotes?)
  • 100% agree with those saying that subsidies should be performance based, and should be stepped based on meeting criteria for trading volume achieved and uptime targets.
    • I believe using KPIs like this, particularly for uptime makes this a more palatable treasury spend, because it can be at least partially seen as covering the operational cost of running a high availability service.
    • Also not opposed to AST treasury incentive for uptime, and points incentive for volumes.

Comments following the new wording:

TBH what is being suggested is a bit vague, I’d prefer to see something more specific. I’ve put an example down below, but am completely open to other suggestions, I’d just like a bit of clarity before I vote.

The intention is not to be prescriptive, but to provide some guidelines for co-ordinators who already have a lot on their plate. All numbers are plucked out of the air, so don’t get tied up on actual $ values.

Anything in [] would be adjusted by co-ordinators based on discussions with makers.


  1. Onboarding stimuli

    • This would be an acknowledgement of the effort taken to get a server up and running, and serving orders. This could be split into two components:
      • [Fixed amount] provided at least [X] swaps (number, not value) are served in [onboarding period].
      • [Variable amount] based on $ volume over the most recent [measurement period] (could be removed and replaced with performance incentive below).
      • Example with numbers
        • Onboarding period of 3 months
        • Fixed amount of 25k AST provided at least 500 swaps are served in that 3 months, paid at the end of month 3
        • Variable amount of 1% of total swap volume paid at the end of each month for the subsequent 3 months (i.e. month 3-6 of being a maker)
  2. Performance incentives

    • Intended to reward reliability and/or performance. Any of the following:
      • Fixed payment for uptime, e.g. 99.99% → [10k AST] per month
      • Payment for average daily volume volume given a [threshold] is met, e.g:
        • 0 - [$500k] → 0
        • [$500k+] → 0.035%

Notes:

  • The onus would be on the Makers to keep a log of all successful transactions in an agreed format that would allow us to verify $ values.
  • Similarly uptime would need to be provided by makers based from an agreed third party service
  • All payments would be in sAST (stakeFor), with conversion from $ value done at the time of payment.
  • The success of this system depends on attracting and keeping makers, so there is a balance to be struck between making the incentives attractive, but not so attractive that makers would come for the onboarding incentives then leave once they finish.
  • I am assuming that paying retrospectively avoids the MetaMask fee increase effect when the incentives end.

Just a few thoughts and comments from me :slight_smile:

IMO - I don’t think we need to write/vote an AIP everytime we onboard makers/integrations or apply performance based incentives. It’s not very efficient. Furthermore, there could be instances when the maker prefers more anonymity. I think since the AirSwap coordinators are doing the stakeholder engagement it makes sense we discuss these incentives internally and then informed the community. Any objections could be raised in the discord and we can discuss. Perhaps as a compromise we can define a maximum value of the incentives packages the Coordinators are allowed to utilise. Anything proposed that exceeds the maximum could be voted on like an AIP or configuration vote.

In short, I think the AIP should call to empower coordinators to negotiate rebates on a case by case basis while sharing as much info as possible with the community to stay accountable.

As for the incentive - I think sAST is a pretty good mechanism - but each case is unique and dependent on the interests of the individual maker/integration etc. I’m not sure a strict rule on what the incentives are (currency or amount) is the best way to go - it really limits our negotiating options.

1 Like

In terms of AIP wording, I think the vast majority can be removed - my points & comments were never really intended to go into the AIP wording - they are not concise enough, just there to encourage discussion.

This could probably be distilled down to a few short bullet points.

My main concern is makers creating good volume during incentive periods, then not being able to keep it up, or worse, disappearing, after the end of the incentive period. This was the reason for retrospective performance-based incentives, and rewarding in sAST.

I do understand that some makers may not want sAST, but I think it should be the default starting point.

1 Like

It does make sense to me to have high volume because it will effectively make people aware of Airswap and perhaps attract investment. However, we still need to be able to drive more organic volume without subsidy.
For me, i would think it is appropriate now to sub because we are using MM and the fee is high for makers.

I wouldnt subsidize like this after we launch our own web-app.
Can we have a time limit on this Aip?

  • temporary incentive package for makers on MM*

I against using treasury for further stimulus or so after we have our web-app.

It should be perhaps percentage rebate or so later. Like if you reach x volume, you get % of fee back kinda thing from the revenue, not treasury. Some sort of tier-system.

We should not sub new makers with Asts without seeing their performance when we have our own web-app. We should have tier rebate system. They get % fee back .the more volume, the more they get back. For example, You earn me $100000, i give you back $10000. You earn me $10000, you get $500.

So this aip doesn’t show me a specific plan but example of x and x.

Are we voting again later for a specific rebate racket/tiers?

I think this aip should be bit more specific with details and plans and how implement, specific tiers or formula for rebate.