Trading Volume is one of the lifelines of any Decentralized Exchange (DEX), including Astroport. Astroport’s revenue comes from one source only: the swap fees that are collected on every swap that occurs on Astroport. To date, most of Astroport’s features were focused on attracting deep liquidity which indirectly attracts trading volume via low slippage swaps as a result of deep liquidity. There are no features which directly attract users to swap their assets on Astroport yet.
There have been discussions about lowering swap fees on Astroport in the Discord before in order to attract more trading volume. Personally, I feel that this may be a double edge sword. Lower swap fees → lower yield for providing liquidity → Liquidity providers exit Astroport as yield is insufficient to compensate for the risk of impermanent loss → decreased liquidity on Astroport → Increased risk of incurring slippage due to low liquidity → drives users away from Astroport
It is also possible to offer fee rebates for traders, paid in $ASTRO similar to how Dydx (Perpetuals Exchange on Ethereum) attracts trading volume. This proved to be highly successful but can also possibly increase the selling pressure on $ASTRO itself from users dumping $ASTRO to offset the swap fees.
What if there was a way to offer swap fees rebate to Astroport users while increasing utility for $ASTRO itself? With that, let me present to you my idea of implementing swap fees Rebate utilizing xASTRO Staking yield.
As per Astroport’s documention, 0.1% of the 0.3% swap fees collected go into $ASTRO buybacks and distributed to xASTRO holders. My idea involves utilizing a point system similar to Prism Protocol’s AMPS feature where xASTRO holders are able to accumulate points per number and size of swaps executed on Astroport. Points are accumulated for 1 week and at the end of every week, the number of points a user owns will determine their xASTRO yield to a certain extent for that week.
The xASTRO yield will be distributed as such:
-
Half of the 0.1% of swap fees goes to xASTRO holders
-
The remaining half of the 0.1% of the swap fees goes to xASTRO holders with points accumulated. Yield will be distributed based on a user’s number of points/total number of points of all users for the week.
Advantages:
-
Incentivises users to swap on Astroport for the fee rebate → increase trading volume
-
Incentivises users who swap on Astroport to accumulate and stake $ASTRO to be eligible for the fee rebate → increase utility for $ASTRO
Disadvantages:
- DEX aggregators are unable to account for the overall discount that users can save on their swaps and will not prioritize Astroport in their routings.
While this may decrease xASTRO yield in general, it makes sense to reward users, especially xASTRO holders who are contributing to the revenue generation of Astroport.
Feedback is highly welcomed!
1 Like
Isn’t the trading volume on Astroport more of an issue of lack of DApps and utility on Terra 2.0 than the current trading fees?
While everyone would enjoy lower trading fees, the question we should be asking is… What % of the total Terra 2.0 DEX trading volume are executed on Astro vs other DEXes?
If it is extremely low precent of the total trade volume, then we need to look at what the competitive pressures are. Is it fees? Is it better integrations with wallets and other applications? Is it because Astro doesn’t have the LP that are in demand.
If it is middle to high percent, then we should focus on whether Astro should remain on Terra 2.0 or at least admit that until Terra 2.0 grows in utility, Astro will continue to be stagnant.
Trading volume should be organic, not faked with incentives. Incentivizing trades can lead people to swap tokens just for the sake of getting incentives.
Isn’t the trading volume on Astroport more of an issue of lack of DApps and utility on Terra 2.0 than the current trading fees?
While everyone would enjoy lower trading fees, the question we should be asking is… What % of the total Terra 2.0 DEX trading volume are executed on Astro vs other DEXes?
This is likely the case. Also, given that Astroport currently has the highest TVL on Terra 2.0 based on DefiLlama, it likely commands the largest share of the trading volume between the Terra 2.0 DEXs as it has the most liquidity and more liquidity → better swap rates.
or at least admit that until Terra 2.0 grows in utility, Astro will continue to be stagnant.
My suggestion isn’t really to address the lack of transaction volume now, it’s to ensure that Astroport continues to maintain its current position as the main DEX when Terra 2.0 takes off and to give Astroport any form of competitive edge it can get to compete across Cosmos. I also do not have any doubt that Terra 2.0 will take off.
From a technical standpoint, one of the key differences between Astroport and the other Terra DEXs such as Phoenix and Terraswap is the availability of a governance token further incentivising the liquidity pools to attract people to provide liquidity. If Phoenix and Terraswap were to launch their own governance token, they may take a significant portion of liquidity and trading volume from Astroport.
Hence, it is important to keep innovating and make Astroport better than before to cement our lead within Terra 2.0
If we take reference from xASTRO’s current APY of 28%, if my suggestion were to be implemented, it would mean that a user staking $ASTRO will get an APY of 14% and someone who does a significant amount of swaps will likely get up to 26% APY. Every swap takes a 0.3% fee. I do not believe that the increase in APR is significant enough to motivate people to perform wash trading. The gain in APY is unlikely able to cover the swap fees incurred.
Regardless of whether the trading volume is organic or faked with incentives, it is an indisputable fact increased trading volume brings about 2 significant benefits:
-
Increased APR for liquidity providers → attracts more liquidity → better swap rates between assets → Astroport shows up on DEX aggregators more often → attracts more users to swap on Astroport
-
Increased buying pressure for $ASTRO from buybacks supplied by 0.1% of swap fees → higher APY on xASTRO staking → attracts more people to buy/accumulate more $ASTRO to benefit from high single-asset yield with no risk of impermanent loss.
In addition, with my suggestion, one can only benefit from trading fees rebate if they stake their $ASTRO for xASTRO → more utility for $ASTRO → increase demand for $ASTRO, especially for users who swaps regularly on Astroport
1 Like
The low trading volume for Astroport is could boil down to the lack of dApps launched on Terra2 for now. Astroport is currently the dominant DEX on Terra2, ahead of Terraswap & PhoenixDEX. The traded volumes in Astroport will only increase with more dApps launching on Terra2.
For Astroport, what will be beneficial is to ensure that dApps launching on Terra2 selects Astroport to be their main LP and making it easy for Astroport swaps to be done on their respective dApps. For example, in the past, Nexus Protocol integrated the Astroport nLUNA-PSI swap into their Nexus webapp, making it easy for users to interact with Astroport SCs on its webapp.
In order to continually ride on the growth of Terra2, I think Astroport should focus on making its SC easily integrateable and incentivise dual incentives wherever possible. Focusing on supporting new launches.
3 Likes