Osmosis Taker fee
Welcome to this new governance article! In this article we will discuss proposal 651 on Osmosis. This proposal requests approval for setting the taker fees to 0.1%. We will give a short description of the proposal, the pros and cons and include links to places where you can vote. Let’s dive in!
(For people interested about the current state of affairs; an overview of statistics for the taker fee can be found on this Dashboard)
TL:DR:
Proposal 651 is about the taker fee on Osmosis. A taker fee is the fee paid by the trader to the exchange when the trade order is executed. In case of Osmosis this fee is charged when someone wants to swap from one asset to another asset. This fee will be added on top of the swap fee which is already applicable since the beginning of the DEX.
Pro:
- Drives value to OSMO holders
- Governance approval for 0.15% in proposal 530
- Concentrated liquidity pools have a lower swap fee
- Data gathering can start
Against:
- Taker fee makes trading more expensive
- Badly timed with disappearing of other fee reducing measures
The proposal
“The taker fee is the fee paid by the trader to the exchange when the trade order is executed.”
Source: www.lcx.com
Proposal 651 is about the taker fee on Osmosis. A taker fee is the fee paid by the trader to the exchange when the trade order is executed. In case of Osmosis this fee is charged when someone wants to swap from one asset to another asset. This fee will be added on top of the swap fee which is already applicable since the beginning of the DEX.
An example
Let’s show this with an example.
Suppose you want to trade $100 USDC to OSMO. Your swap is normally impacted by the price impact (called slippage) and the swap fee of 0.2% which is applied. This means that a trade of this size costs $0.20 to execute, which is given to the liquidity providers from the pool used to facilitate the swap.
The taker fee will be implemented on top of this fee. A taker fee of 0.1% means an additional $0.10 will be charged for swapping from USDC to OSMO.
Not taking the slippage into account this means that the $100 USDC you started with gives you $99.70 in OSMO after the swap and $0.30 is paid in fees.
A brief history
Conversations on this topic have been heated with people for and against this. It all started with a thread on Commonwealth in the beginning of June, 2023.
Shortly after, proposal 530 was put on chain which passed with flying colors.
The version 19 upgrade executed mid September was the first implementation of the taker fee, at that time set at 0%.
And finally we are here, with the proposal on chain to set the taker fee to 0.1%.
The conversation around it has never stopped in the meantime, so there is a lot of information to be found on the forum.
Arguments in favor
On the forum and other social media several arguments are in favor of this proposal.
One common argument is the fact that the earnings from the taker fee are distributed over OSMO holders. This will drive value to holding OSMO and holders will participate in the success of the DEX.
Furthermore, governance already approved a taker fee of 0.15% in proposal 530. So this proposal requests for a lower percentage than what was already approved.
The total fee experienced by traders will be lower for users of concentrated liquidity pools. In those pools the swap fee is not set at 0.2% to 0.3%, but it can be as low as 0.01% for certain pools. This means that the total fee is lower than what we were used before Supercharged liquidity.
And last but not least, right now data about what the taker fee means for the volume is hard to simulate. So with activating the taker fee real data gathering can start. This can in turn be used to improve the model and tailor it to the best benefit for Osmosis.
Arguments against
Just like we have voices who like to see it pass, there are also people against this proposal.
It mainly involves 2 big arguments.
The first argument is that adding a taker fee makes trading on Osmosis more expensive. An additional fee is charged, which makes Osmosis more expensive than other DEX and CEX where we want to compete with. The development of front-ends like TFM and Rango where the swap route is determined where the swap can be executed the cheapest, comes with the risk that volume will disappear to other exchanges.
On top of the implementation of the taker fee there is the disappearance of fee reducing measures, like the multi-hop discount. This causes swaps which previously could be executed with a 0.2% swap fee now to cost 0.7% to 0.8% in the worst case scenario.
Protocol Fee DAO
To monitor what happens with the volume and liquidity of Osmosis as working group has been put together. This group has been approved through governance in proposal 629.
The group contains validators as well as independent support and is given the task to monitor and adjust the taker fee where necessary. On some pools the taker fee might even be set to 0% if the DAO finds it necessary. The DAO can only give recommendations though, the actual change of the taker fee for a specific pool still has to pass governance.
Go vote!
And that was the taker fee in a nutshell. I hope you are a bit wiser and able to make an educated vote on this proposal.
You can cast your vote on various locations. Make sure to get your vote cast and let yourself be heard! You can make a difference in the outcome of the proposal!
