The fee structure of the StablePlaza pool

Timan Rebel - July 9, 2022

If you like to learn more about the StablePlaza pool, we have a great Introduction to the StablePlaza pool. As a follow-up, we’ve written about the four stablecoins of the StablePlaza pool.

The next part in our StablePlaza series dives deeper into the fee structure of the upcoming StablePlaza pool and how you could earn a part of those fees. This is not financial advice, but an objective explanation of the fee structure of StablePlaza.

Swapping tokens

To swap stablecoins on StablePlaza the user has to pay a fee. This fee is one part the network fee to execute transactions on the Ethereum network and is paid to the miners, and the other part is a transaction fee that StablePlaza charges for the use of the pool.

Our goal with DefiPlaza, and thus with the new StablePlaza pool, is to offer a highly competitive trade cost to the end-user. 

Thanks to our greatly optimized smart contract, we are able to significantly lower the network fee a user has to pay when executing a transaction.

Next to the network fee, we charge a transaction fee of only 0.03% of the value traded. If you would swap 10,000 USDC for BUSD, the transaction fee would only be $3. 

Providing Liquidity

The StablePlaza pool can only operate if enough liquidity is provided to make swapping tokens possible. In return for providing liquidity, these liquidity providers receive a cut of the transaction fee as a reward.

Two-thirds of the transaction fees are rewarded to the liquidity providers and one-third to the DFP2 holders who stake their DFP2 on the StablePlaza pool.

Let us explain how that works with an example.

If the TVL (total value locked) of the StablePlaza pool would be 1,000,000 USD, roughly 1,000,000 XSP was minted and given to the accounts that provided this liquidity. At this point, 1 XSP is 1 USD. 

After a while, a total of 100,000,000 USD is traded via the StablePlaza pool. With each swap, 0.03% of the input token is added to the liquidity pool, and 99.97% is converted into the output token. And one-third of the transaction fee is added to the total of unclaimed rewards for the staked DFP2. (More on that later).

So, after 100 million USD of trade volume, 30,000 USD is added to the liquidity pool, increasing the TVL to 1,030,000 USD. 

To calculate the new price of XSP we have to take into account the staking rewards. The calculation would be: TVL / (total XSP including staking rewards) = 1,030,000 / (1,000,000 + 10,000) = 1.02 USD

Which is a 2% reward with almost no risk of impermanent loss!

Staking DFP2

Competing DeFi protocols regularly work with an ‘admin fee’ for each trade. In DefiPlaza, there is no admin fee, but some of the fees will be shared directly with the community. Anyone who wants to can stake their DFP2 governance tokens in return for a part of the generated StablePlaza fees, which makes this the first utility added to DFP2. It won’t be the last!

As an extra feature holders can voluntarily lock their DFP2 for a period of up to 180 days to increase their cut of the fees. Without locking the cut is 1x for each DFP2, with voluntary locking that cut can go up to 3x. 

With the voluntary locking, DFP2 holders are rewarded for removing their liquidity from the market for a certain amount of time, decreasing the price volatility of DFP2 in the process.

At any given time, with or without locking the DFP2, holders can claim their rewards. Rewards are minted in XSP, the liquidity token of the StablePlaza pool, and can be converted into any of the four stablecoins in the StablePlaza pool.

Let us explain that with an extension of the example above.

Of the generated 30,000 USD in fees, one-third is reserved for the staked DFP2. Say 100,000 DFP2 is staked by DFP2 holders. The 10,000 USD of generated fees will be divided over the 100k DFP2. If you staked 10,000 DFP2, you would receive 10% of those fees, which is 1,000 USD. 

That is if nobody locked their DFP2.

The calculation becomes a bit more complex with the locking. Say one holder added 10,000 DFP2, which would be 10% of the total staked DFP2, and locked their DFP2 for the full 180 days, receiving the 200% bonus. If nobody else locked their DFP2, this holder would receive (DFP2 + bonus) / (total DFP2 + bonus) =  (10,000 + 20,000) / (100,000 + 20,000) = 25% of the generated fees, which is 2,500 USD.

What’s next?

The upcoming WhitePaper will do a tech deep dive into the inner workings of the new StablePlaza pool, explaining in more detail the fee structure and how we anchor liquidity around 1 USD. It also reveals some unannounced features of the StablePlaza pool.

The WhitePaper will go live on Monday, July 11, with the StablePlaza following closely on Thursday, July 14.