Tokenholder Proposal: Orca Trading Fees Reallocation
Co-sponsored by: Ryze Labs, Collab+Currency and Marin Digital Ventures
The purpose of this post is to propose a revision to Orca protocol’s trading fees. Specifically, this post proposes reallocating a portion of the existing trading fees to the Orca DAO treasury, which is controlled by $ORCA token holders.
Brief Overview
- Trade Volume: Orca has consistently been the #1 DEX by trading volume on Solana for the past 18 months. In fact, on average, roughly as much trade volume flows through the Orca protocol as all other Solana DEXes combined, and does so at a much higher weighted-average LP fee rate.
- LP Fees: Orca pools routinely capture >70% of all LP fees generated across all Solana DEXes, and >90% of LP fees generated on “altcoin” pairs (pairs that include at least one token that is not SOL, a stablecoin, or an LST).
In line with continuing to further decentralize the Orca protocol, the proposed reallocation of trading fees (as set forth below) to the DAO treasury will enable $ORCA token holders to have additional tools at their disposal to ensure long-term, sustainable support, maintenance and growth of the protocol. To be clear, there is no change to the fee tiers paid by Traders. This proposed revision only affects the percentage breakdown of how trading fees are split among the LPs, DAO Treasury and Climate Fund.
Existing Fee Schedule
Traders on Orca currently pay variable fees, depending on the pool fee tier set by the pool creators. Table A below shows the existing fee structure paid by Traders on Orca’s most popular pools and how they are currently being shared between Liquidity Providers (LPs) and the Climate Fund. For all pools, Orca’s smart contract routes 97% of trading fees to LPs and 3% to the Climate Fund.
Table A:
| Pool Fee Tier | Trader Fee | LP Fee | DAO Treasury | Climate Fund |
|---|---|---|---|---|
| 1.00% pool | 1.00% | 0.97% | - | 0.03% |
| 0.30% pool | 0.30% | 0.291% | - | 0.009% |
| 0.05% pool | 0.05% | 0.0485% | - | 0.0015% |
| 0.01% pool | 0.01% | 0.097% | - | 0.0003% |
Proposed Revised Fee Schedule
This post proposes the following revised fee allocation:
- for liquidity pools with trading fee tiers at or above 0.3%:
- 87% of trading fees generated from those pools will be routed to their LPs
- 12% will be routed to the DAO treasury
- 1% will be routed to the Climate Fund
- for liquidity pools with trading fee tiers below 0.3%:
- 100% of trading fees generated from those pools will be routed to their LPs
The Orca protocol is generally capturing the vast majority of LP fees generated across the Solana ecosystem from the liquidity pools with trading fee tiers at or above 0.3%. In addition, other leading Solana DEXes currently take protocol fees from their liquidity pools at higher rates than the reallocation proposed by this post. Accordingly, this reallocation of fees should maximize value accrual for the DAO treasury, while having a minimal impact to the Orca protocol’s ecosystem dominance. However, this post recognizes this proposed reallocation of trading fees may have unintended negative consequences and so requests that the Orca Governance Council readjust the allocation to increase the percentage which routes to LPs on pools at or above the 0.3% fee tier if the Orca protocol’s market share drops after implementation.
Table B below sets forth the proposed fee allocation for Orca’s most popular existing fee tiers; however, the above proposed specifying rules would apply to all fee tiers, including those that do not presently exist but may be created in the future.
Table B:
| Pool Fee Tier | Trader Fee | LP Fee | DAO Treasury | Climate Fund |
|---|---|---|---|---|
| 1% pool | 1% | 0.87% | 0.12% | 0.01% |
| 0.3% pool | 0.3% | 0.261% | 0.036% | 0.003% |
| 0.05% pool | 0.05% | 0.05% | - | - |
| 0.01% pool | 0.01% | 0.01% | - | - |