Trading fees are one of the most important levers to use when optimizing the order book protocol. Changing fees by only a few basis points can have a significant impact on market structure.
Good fee changes can have positive effects:
- More trading volume
- Deeper order books
- More liquidity providers
- Other apps able to build on the protocol
Fee changes can also have negative effects:
Less trading volume
Thinner order books
Fewer liquidity providers
(Predatory fee schedules centralize liquidity provisioning)
Less reliable price source
(Wash trading can occur with zero fees)
Apps unable to build on the protocol
The order book protocol currently has a 0.01% fee on orders that ‘take’ liquidity from the book. This fee is paid in whichever ERC-20 token the trader is sending to the RubiconMarket contract. It can be changed by setting the value of the
feeBPS parameter. You can read about the rationale behind the 0.01% in this post.
There are no maker fees on the Rubicon protocol, currently there’s not even a parameter for them in the order book contract. Why? Makers already have a trading cost. Whether they send limit orders to Rubicon Market or batch orders through Market Aid, they must pay gas fees. And though they are trending downwards, Optimism gas fees are and will continue to be non-zero. Liquidity providers and market makers need to account for gas in the spreads they charge.
A key advantage of the Rubicon protocol is that it can have lower spreads and fees than other liquidity venues on the same network. Adding a maker fee would make spreads higher, which is suboptimal while the protocol is growing and attracting more volume and liquidity.
My current thinking is that maker fees should stay at zero while gas fees are a significant variable cost for traders. Improvements to Ethereum Layer 2 networks (EIP-4844 and many others) are on the horizon and do promise much lower gas fees, so in the future a non-zero maker fee could make sense.
It’s up to our community to continually assess the health of Rubicon markets and determine whether a maker fee makes sense.
Academic researchers have written hundreds of papers on trading fees and their effects on the health of underlying markets. Thierry Foucault’s papers examining order book fees are a great starting place.
While most papers are focused on national stock exchanges or international derivatives exchanges, their learnings, specifically those regarding limit order book dynamics, are still relevant to the Rubicon protocol.
Should Rubicon have a maker fee? Should the maker fee remain at zero? Should there be maker rebates?