min_swap_fees.md

Minimum swap fees

This is a proposal to set a minimum swap fee.

Current swap behaviour

Due to ratio shifting the current swap behaviour depends on whether the user is buying or selling Rowan.

In the following formulas:

X - input depth (balance + liabilities)
Y - output depth (balance + liabilities)
x - input amount
y - output amount
r - current ratio shifting running rate
f - swap fee rate, this must satisfy 0 =< f =< 1
min_fee - minimum fee for a swap

Swapping to Rowan:

y = (1 - f) * x * Y / ((x + X) * (1 + r))
fee = f * x * Y / ((x + X) * (1 + r))

Equivalently this can be written as:

raw_XYK_output = x * Y / (x + X)
adjusted_output = raw_XYK_output / (1 + r)

(1) fee = f * adjusted_output
y = adjusted_output - fee

Swapping from Rowan:

y = (1 - f) * (1 + r) * x * Y / (x + X)
fee = f * (1 + r) * x * Y / (x + X)

Similar to the case of swapping to rowan, this can be written as:

raw_XYK_output = x * Y / (x + X)
adjusted_output = raw_XYK_output * (1 + r)

(2) fee = f * adjusted_output
y = adjusted_output - fee

Proposed Change

Apply a minimum fee when swapping.

The fee calculation in equation (1) and (2) becomes:

fee = min(max(f * adjusted_output, min_fee), adjusted_output)

The min function is required to ensure that the fee is not greater than the adjusted output.

Parameters

The min_fee must be in the same denomination as the buy token, in which case a single value for min_fee (greater than zero) cannot be defined across all tokens. Consequently a default min_fee of zero must be applied and an admin account must be able to specify override min_fee values for specific tokens. The admin account must not be able to change the default min_fee value since zero is the only reasonable value.

The same min_fee must be used when buying a token regardless of the sell token e.g. it will not be possible to set one min_fee for swapping atom to Rowan and another min_fee for swapping usdc to Rowan.

Unlike the min_fee it is possible to define a swap fee rate, f, which can be applied on all swaps. The admin account must be able to specify a default swap fee rate and specify override values for specific tokens. As with the min_fee the same swap fee rate must be used regardless of the sell token.

See the CLI section for commands for setting and querying the swap fee params.

Events

There are no new events or updates to existing events.

CLI

The CLI option for querying the swap fee rate (sifnoded q clp swap-fee-rate) and setting the swap fee rate (sifnoded tx clp set-swap-fee-rate), must be renamed to sifnoded q clp swap-fee-params and sifnoded tx clp set-swap-fee-params and updated to include the min fee.

Setting

The CLI should validate that the min fees are valid cosmos Uint256.

sifnoded tx clp set-swap-fee-params \
  --from sif \
  --path ./swap-fee-params.json \
  --keyring-backend test \
  --fees 100000000000000000rowan \
  --chain-id localnet \
  -y

{
	"default_swap_fee_rate": "0.003",
	"token_params": [{
			"asset": "ibc/27394FB092D2ECCD56123C74F36E4C1F926001CEADA9CA97EA622B25F41E5EB2",
			"swap_fee_rate": "0.002",
			"min_swap_fee": "12"
		},
		{
			"asset": "cusdc",
			"swap_fee_rate": "0.002",
			"min_swap_fee": "800"
		},
		{
			"asset": "rowan",
			"swap_fee_rate": "0.001",
			"min_swap_fee": "12"
		}
	]
}

Querying

sifnoded q clp swap-fee-params --output json

{
	"default_swap_fee_rate": "0.003",
	"token_params": [{
			"asset": "ibc/27394FB092D2ECCD56123C74F36E4C1F926001CEADA9CA97EA622B25F41E5EB2",
			"swap_fee_rate": "0.002",
			"min_swap_fee": "12"
		},
		{
			"asset": "cusdc",
			"swap_fee_rate": "0.002",
			"min_swap_fee": "800"
		},
		{
			"asset": "rowan",
			"swap_fee_rate": "0.001",
			"min_swap_fee": "12"
		}
	]
}