Should Rubicon have Maker Fees?

💡 Ideas
1

Fees

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

Taker Fee

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.

Maker Fees

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.

References

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.

Discussion

Should Rubicon have a maker fee? Should the maker fee remain at zero? Should there be maker rebates?

Embrace debate.

3 Likes
2

I definitely think there should be a Maker Fee & a Taker fee.

I understand that there may be apprehension about establishing this fee when Rubicon is looking to establish itself as a top DEX on Optimism. But let us be frank.

  1. Optimism has a TVL of 788 million USD (as of the time of the post): Rubicon has 1.2% of this TVL. There is a big chance that following the pausing of Optimism awards there will be a huge drop off

  2. Optimism Dex’s have a trailing volume of 575m USD and Rubicon has 100k USD, both in the last 7 days. Rubicon has about 0.025% of the trailing volume on Optimism.

Rubicon is small and this offers benefits and pains.

The first major benefit that I have to note is the we are on a layer 2. The fees are low already. So adding a 0.01% Maker will likely offer little fees, except for large traders. There may need to be further benefit to trading on Rubicon.

I am not a coder. I am a scientist who reads an awful lot of economics, but is it possible to order transactions to let those who pay fees come faster than the others.

These fees are a great idea for many reasons. There is minimal trading volume on Rubicon versus Optimism in the first place. The people who do trade on Rubicon are very much so committed to the app. The fees are accompanied by low transaction fees on Optimism, and can increase the rates for liquidity providers.

There may need to be a fee cap for big traders in some way. We have to look for a way to benefit the trader, because the maker fee definitely benefits the liquidity provider.

3

Any fees that are baked into protocol are likely gonna be taken as natural to new traders and if they are reasonably low, it will work for us in the long run.

1 Like
4

Thanks for your thoughts Caesar.

Transaction ordering happens at the network level. In the next upgrade, Optimism will support EIP-1559, a scheme that utilizes both a base fee and priority fee to determine the order of pending transactions. It has seen a lot of success, leading to less frequent and drastic gas spikes and fewer stuck transactions for users.

The maker fee would only benefit liquidity providers if it was a “rebate” that was paid back to them. Importantly, a maker rebate has to be less than or equal to the taker fee, otherwise, the exchange is subsidizing trades (losing $).

5

The Liquidity Providers get a lot of rewards from the yield of bath tokens and the future utility of even potentially depositing them in AAVE or some other application for more yield. Furthermore, this maker fee would increase their benefits.

I notice in the whitepaper when liquidity providers remove their assets, they pay a small fee to the remaining pool. Is there a way that this removal fee could be increased for the benefit of traders?

There could be some sort of relationship between the LP provider & the trader, where the trader pays fees to motivate LPs to keep their assets in place & the LP pays a fee for removal.

There could even be a relationship for these fees to an extent.

1 Like
6

The relationship could be something like homeostasis. When the LPs leave Maker fees can decrease to raise motive for to trade, & pool exit fees are increase to reduce motive for leaving the LP pool.