Honeyswap Partnership with Gitcoin

Esteemed Bees,

I’m seeking input on a proposal to link Honeyswap and Gitcoin. I’m using Discourse instead of the standard Tulip biz dev discord channel since we’d be sharing revenue from our protocol fee, so it’s not a typical partnership.

Gitcoin Background - https://gitcoin.co/

Gitcoin uses Quadratic Funding to fund public goods in the crypto space. Right now they’re dependent on donations, but recently they launched a DAO and are looking for ways to sustainably fund QF grants through its new treasury.

Honeyswap Background:

As the scaling wars heat up, we’re facing more and more competition from similar DEXes, and everyone (including us) is looking to expand onto new platforms. We’ve had a lot of success on xDai, and are still dominant even following Sushiswap’s move to xDai, but that success doesn’t necessarily translate to other platforms, as we’re learning on Polygon.

A key advantage for Honeyswap is the 1Hive community. Even within the DAO landscape, few others have our level of commitment to building a better future. 1Hive is a truly decentralized organization, with lots of engagement and growth, that’s building super valuable public goods!

Proposal:

For Honeyswap’s launch onto Arbitrum, we establish ourselves as the “Swap for Public Goods/DAOs/Web3” by allocating a portion of our protocol fee on Arbitrum to the Gitcoin treasury, earmarked for the QF Matching Fund. In exchange, Gitcoin provides liquidity to Honeyswap on Arbitrum.

Benefits for Honeyswap:

  • A compelling reason for like-minded DAOs and traders to provide liquidity and trade on Honeyswap
  • A rock solid brand identity that sets us apart from other swaps
  • Access to Gitcoin’s large and growing community of cool crypto projects

Benefits for Gitcoin:

  • A recurring, uncapped revenue stream for Quadratic Funding
  • A meaningful role in the future development of Honeyswap as a key partner
  • Seamless integration with Gardens, a tool that will help its funded projects become self-sufficient

The Numbers:
Just to set a starting point to work from, I propose we allocate 0.15% of the Arbitrum Honeyswap exchange fee in return for $3 million in liquidity provided (~1% of their current treasury). This is the same protocol fee % we discounted on Honeyswap for Polygon, and at that fee, Gitcoin would match its most recent Quarterly Matching Pool total ($700k) at $5.19 million in average daily trading volume.

I propose we let Gitcoin choose the trading pairs it provides liquidity for, but offer to incentivize certain pairs that are strategic for us with aComb.

Next Steps:

  • Get informal consensus on a structure and numbers within the Tulip Swarm.
  • If we can agree, I’d then bring the proposal to Scott Moore, Head of Community at Gitcoin, and see if we can get informal interest there. Scott and I are in touch on this already.
  • If they have interest, I’d then create a 1Hive Signaling Proposal for the partnership.
  • If that passes, I’d work with Scott to create the Proposal on a Stewards Workstream at Gitcoin, where it would then need to pass to get funding.
20 Likes

This is a fantastic opportunity and I’m thrilled for Honeyswap to become a Gitcoin partner.

My one concern is that streaming half of swap fees would make LPing on Honeyswap unattractive for yield seekers for two reasons:

  1. less swap fee goes to the LP, and
  2. we would be forced to decide whether we take our 0.05% out of the LP (so LPs only get .10% on swaps), or omit it (in which case we have no revenue stream to support aCOMB or HNY) or increase swap fee for users (which makes us less competitive from a user choice perspective)

That said, if we’re thinking DAOs will be the predominant LPs on Honeyswap Arbitrum and their goal will be to provide liquidity for their own / aligned tokens rather than earn swap fees, then this becomes a moot point entirely.

Broadly, I’m in support.

8 Likes

I am in support of this idea as well. I mean this angle of funding public goods will really set us apart form the multi-tude of DEXes that seem to be mushrooming everday like there is no tomorrow! However i echo @ceresbzns concerns. May be we need a more robust discussion on how we are to support aCOMB especially after seeing what the fate of xCOMB and pCOMB has been since the launch.
I know there has been some really good discussions here on discourse with some solid recommendations and analysis by the liks of ETH_man, may be we need to have a think about what we want to achieve from Honeyswap and the farms (when launched) on artibirum especially now that the playing field will be levelled once all protocols start moving to Arbitrum!

6 Likes

I discussed this briefly with @Eth_Man and he brought up an idea that I think is worth exploring: rather than streaming swap fee revenue directly to Gitcoin, we should stream COMB (aCOMB or a reformed unified COMB token) to Gitcoin and support COMB with a 0.15% swap revenue cut.

The benefit of this approach is that we can also compensate LPs by allocating a portion of COMB to farm pairs. It gives us more control and flexibility to make choices that ensure the long-term survivability of the protocol, whereas immediately locking away half of total swap fees will significantly diminish our room to maneuver.

5 Likes

Just so I’m understanding this correctly from Gitcoin’s view, you’re saying we contribute the equivalent of a 0.15% swap fee, but in aCOMB instead of Honey?

Something to think through is that these funds will be used as grant funding, so every 3 months they’ll be sold off and sent to fund public good projects. Not sure if that’s okay for COMB tokenomics.

2 Likes

Good to call out. In that case sending DAI, RAI or ETH on a recurring basis is probably a better approach. We can figure out a way to make it work.

2 Likes

Thanks for taking the lead on this, a partnership with gitcoin will be really beneficial for us. Glad you’re here! :honeybee:

3 Likes

I like the meme “Swap for Public Goods/DAOs/Web3”. Having this DAO2DAO collaboration will be beneficial for both communities. It would be awesome to think about what other services are relevant to public goods. I left a few ideas in a recent post: We must reform the Honeycomb - #13 by gabi

2 Likes

On the Tulip team call today we discussed ways we could fund this. One alternative that I put forward: what if we raised the swap fee from 0.3% to 0.35% with the following distribution:
0.25% to LPs
0.05% to protocol fee receiver
0.05% to gitcoin

This is a marginal fee increase to users (fractionally more than uniswap or sushiswap), but allows us to fund Gitcoin and fund Honeyswap/Honeycomb without cutting into LP returns. We can call out the Gitcoin public grants funding prominently on the site UX so users understand where the fees are going and why they can feel good about supporting Gitcoin and 1Hive.

4 Likes

Have you thought about splitting the protocol fee with GC? If we’re about supporting public goods we have to make some sacrifices too, not just for the sake of funding public goods but also to stay competitive and relevant on a market full of swaps.

I guess the flow of users we’re looking to have with this partnership can sort of make up for the cut on the protocol fee?

if honeyswap calculates the best swap out of things like sushiswap/baoswap/honeyswap, is this based on slippage/liquidity/fees? By raising our fees, will honeyswap not route swaps through our competitors instead? I don’t have a good understanding of how it all works so it’s very likely I’m wrong

Aside from this, I think gitcoin would be a perfect partner for honeyswap in terms of benefit to each other’s communities, and shared goals of “for the common good”. Great initiative and work on this so far

2 Likes

What exactly is the protocol fee receiver? The amount going towards aCOMB buyback?

I’d support these numbers. I’d also support 0.4% total with 0.1% going to Gitcoin.

To give a sense of Gitcoin’s potential revenue with a 0.05% fee, based on both extremes of Honeyswap success:

  • At $80k avg. daily volume (roughly Honeyswap on Polygon), quarterly amount to Gitcoin is $3,500
  • At $1b in daily volume (roughly Uniswap v2), quarterly amount to Gitcoin is $45M

I mentioned on the call today that $15M is the daily trading volume where revenue to Gitcoin reaches the matching pool from last quarter.

1 Like

Good question, my hunch is that liquidity isn’t spread so evenly across swaps and that .05% is well under the typical arbitration gap, but something to look into for sure.

There’s quite a bit of range in what people will accept for swap fee. Normally, this is tied to the pair in question: low risk swaps take the lowest fee (eg USDC-DAI) while high risk pairs take higher fees (SHIB-ETH).

On Uniswap v3, this range is expressed 0.05% (lowest risk), 0.3% (standard), 1% (high risk)
Balancer constantly adjusts their fees through a system called Gauntlet that hypothetically bands from 0.0001% to 10% - however, most actual trading fees on active pools together are in the .05%-.44% range.
Bancor pool fees range from 0.1-1.0%

This upward range demonstrated by these top 5 dexes is pretty good evidence that there’s substantial appetite in the marketplace for traders to pay higher swap fees than the 0.3% benchmark set by Univ2. In other words, it’s an option that’s on the table - we don’t need to subdivide the 0.05%

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Protocol fee receiver collects a portion of swap fees for Honeyswap. What exactly is done with that revenue is up to our discretion. Most univ2 forks like Sushi use it to buy the farm token and distribute it to users staking the farm token (eg xSUSHI or dQUICK)

1 Like

Drafted a potential UI enhancement suggested by @ceresbzns that could enable users to donate directly to Gitcoin from the Honeswap interface. As a flyout, perhaps it could appear for certain (stablecoin?) trades?

I realize something like this is a lot easier to draw than code… :thinking:
Also know there are potential drawbacks @paul :grin: :heart:

Ultimately we know they want stablecoin revenue…this might be a way to provide it separate from a slice of the fees that feed our common pool. It would also benefit 1Hive by creating a tangible/enduring branding linkage to Gitcoin; every time someone opens a stablecoin trade, they have a chance to support public goods… :honeybee:

4 Likes

I like the additional button for donations.
It may increase revenue, being Gitcoin, and in any case would offer a measure of sentiment.

2 Likes

This seems like a really viable solution. Marginal impact for LPs and users - but still maintaining this incentive to partner with Gitcoin and a commitment to funding public good.