As many mStable community members and external stakeholders have recently suggested, I’m opening up a discussion around reducing mStable’s swap fees. Since the new AMM no longer offers zero slippage, our key competitive advantages lie in (1) reflexivity and (2) composability.
Reducing swap fees to bootstrap users allows mStable to unlock and leverage these two competitive advantages.
User acquisition cost is a key component of the modern network-driven economy. The common pathway many successful DeFi/broader tech platforms have followed is:
- Develop an innovative product.
- Lower barriers to entry & subsidize users → bootstrap the network & generate a network effect.
- Focus on capturing value from the network.
While mStable has an innovative, capital-efficient product, having a swap fee higher than Curve inhibits network growth and creates a barrier to entry for users. The focus should not be on value capture from the network at this stage of the project, which is what a high swap fee implies.
mStable should lower swap fees to 0.01% or 0.02%, such that we undercut Curve by a material margin (Curve is 0.04%).
Since mStable is not the incumbent leader in the stablecoin swap space, we need to make it worth it for users to switch. Dropping swap fees below competition creates a marketable attribute that will help attract users and drive swap volume. Significantly greater swap volume, even at a lower swap fee, will generate more fees in aggregate. More fees will drive higher Save APY, reflexively leading to the minting of more mUSD and imUSD (same goes for mBTC and imBTC).
As more mUSD and imUSD (mBTC and imBTC) are minted, mStable is positioned to achieve integrations with leading liquidity platforms and CEXs because it can prove demand and the scale of the addressable userbase to these platforms. Then, imAssets can truly leverage their composability as interest-bearing collateral, reflexively leading to more minting of imAssets as now the assets have greater utility. With this utility, comes network effect. From there, mStable can shift focus toward value accrual once the network effect has been established.
Again, this all starts with building the user base to prove to liquidity platforms/CEXs that there is demand for integration. And building the user base boils down to lowering barriers to entry by reducing swap fees, effectively an upfront spend on user acquisition to kick off this virtuous cycle.
I welcome the community’s thoughts before potentially moving to a formal proposal.
TL,DR: Users @ any price. Users drive swap volume. Swap volume drives Save. User + Save growth = opportunity for integrations → composability/money lego meme. Composability → network effect. Network effect → value accrual.