SA pools optimization and fee increase

Summary

Close SMART Alpha pools that are not being used and increase a performance fee from 0.5% to 5%.

Description

SMART Alpha has been live for 19 weeks now. While some of the pools became popular and actively used, others haven’t gotten any meaningful liquidity. That adds extra expenses for the DAO because all pools have to be advanced once per week (which costs a gas fee that might get high especially when the ETH network is high-loaded).

That said, the current proposal suggests starting from sunsetting a set of pools that haven’t gotten any liquidity:

  • WETH-BTC-1w | Ethereum
  • UNI-USD-1w | Ethereum
  • DPI-USD-1w | Ethereum
  • DPI-ETH-1w | Ethereum
  • AAVE-USD-1w | Avalanche
  • BTCB-USD-1w | BSC
  • SUSHI-USD-1w | Arbitrum

Besides that, SMART Alpha has been charging a performance fee of 0.5% on the gains of the winning side which is a very small amount compared to other protocols and even hedge funds (who charge 20% performance fee). Due to the limits SMART Alpha was built with, the max fee we could set is 5%. This proposal suggests increasing it to its max value.

Motivation

  • Close the empty pools to avoid the unnecessary expense of the DAO and better focus on targeting specific L2s & assets.
  • Increase SA performance fee to increase the DAO revenue.

Technical details

dMOB team would handle both actions.

Argumentation

For:

  • Concentrating liquidity across SA pools.
  • Potentially increasing the DAO revenue.

Against:

  • Not much I can think of.
2 Likes

How much are those L2 SA pools costing the dao per week?

Thank you Pavlo! The current fees make SA practically free to use. 5% just on the alpha is still far cheaper than alternatives, so I think this is an excellent move.

I would support both proposals. Closing lightly used pools and consider the addition of new pools that would attract new users ie, gOHM on L2s. The fee increase is sorely needed to cover cost of maintaining and ongoing support of the program. This is much appreciated.

Can the fees be dynamic based on the size of the pool? That way we will not need another proposal if some of the pools got popular or other got less active.

I don’t think it could work like that but I’d let Casian & Bogdan weigh in

I support the closure of currently unused pools.

I do not support 10x-ing the performance fee because it will only further disincentivize liquidity provision to the balancer pools. Anyone providing secondary jr+sr liquidity through the Balancer pools is already accepting a small weekly hit in exchange for the opportunity to earn LP fees. Assuming rational LP behavior, increasing the performance fee per epoch to 5% should drain any remaining liquidity from the Balancer pools, which seems counterproductive. I would second @Mos 's question about how much epoch advancement is costing the protcol and only increase performance fees to the extent necessary to cover advancement costs.

If advancement costs exceed the returns from a 5% performance fee, then I would challenge us to consider closing all mainnet pools and migrating that liquidity to Arbitrum.

It more has to do with the DAO earning pennies on top of SMART Alpha. We’ve had tens of millions in TVL and that generated just $10k in fees. I am also not sure the Balancer pools are going to work anyway since it’s hard to balance them out on a weekly timeframe. Please also consider that the fee is just taken from the gains so it will be literally the same we do on the SMART Yield senior side: 5% on gains and that’s still going to be small enough to attract users but big of a change in terms of making the DAO cashflow positive.

3 Likes