Blur Fee Switch Discussion

Governance
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Background: When the $BLUR token was first released in February 2023, the tokenomics outlined a 180-day freeze on governance voting for/against a fee switch on the platform. This freeze period has now expired. We created this initial proposal in order to kickstart meaningful conversation with the community on how a fee switch could positively impact Blur as a protocol for users. In this post, we provide:

  1. An analysis on the current state of BLUR tokenomics
  2. A two-tiered solution to enact a fee switch that also aims to protect Blur’s exchange volume dominance
  3. Encouragement of open-ended discussions on Blur fee switch and other potential upgrades to the token

Proposed Tokenomics TL;DR:

  1. Turn on a fee switch at a 1% base fee. All fees will flow to a smart contract for a BLUR token buyback and burn.
  2. Create tiered fee discounts based on the amount of BLUR held in a user’s wallet.

The Current State of BLUR Tokenomics

Distributing BLUR tokens to users that provide liquidity on Blur has been a novel introduction to the NFT space. The Blur Foundation has done a large amount of work to fine tune their points system to reward good faith liquidity providers. This has allowed Blur to consistently capture over 50% market share of the NFT marketplace volumes. However, from a demand perspective, the only utility the token currently provides is governance voting rights. Despite governance being the token’s sole utility, the governance forum is largely unused. In its 8 months of existence, only one proposal has been voted on, and most posts on the forum go unnoticed. Governance voting rights has not proven to provide enough incentive to hold BLUR.

The lack of demand side tokenomics can be seen in the BLUR price. The BLUR token is down ~89% from its all-time high in February and continues to break all-time lows.

On Monday, the Blur team made an announcement regarding the end of Season 2 and subsequently, 300M BLUR tokens will be released to liquidity providers. Under the current tokenomic structure, there is no compelling reason for the majority of these tokens to be held, causing further price decline. This will likely cause more farmers to quit and take their efforts elsewhere for Season 3. It is clear that an upgrade to the token’s demand-side utility is a needed step. We believe that the following solutions will upgrade the demand-side tokenomics by providing two new use cases for the token.

Proposed Token Economics Changes

Blur Fee Switch:

We are proposing a 1% base trading fee for the Blur marketplace. These fees will be swept into a smart contract that systematically buys back and burns the BLUR token daily via dex.

Tiered Fee Discounts:

We acknowledge that imposing a fee on all Blur Marketplace transactions could potentially serve as a detriment to the volume dominance Blur’s marketplace currently holds over other NFT marketplaces. Therefore, we are additionally proposing a tiered fee structure for users that prefer trading with low fees. For token holders that hold X amount of $BLUR in their wallet, the token holder will be eligible for a discount to the 1% base platform fee per the below thresholds. When a trade is executed on the Blur marketplace, a smart contract will look up the amount of BLUR tokens in a user’s wallet to determine the appropriate trading fee for that user. Requiring users to hold tokens for trading fee discounts adds an additional utility use case for the token.

Proposed Thresholds:


Source: Internal Estimates

A platform fee will create a level of friction for farmers who provide liquidity, but ultimately, the potential profit from farming will still largely be based on collection performance and trade execution. Currently, very few of the largest farmers hold the $BLUR token. Under this proposal, when Season 2 rewards are distributed, this structure will potentially incentivize farmers and traders to hold their rewards rather than sell.

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Source: Internal calculations, Blur Season 2 leaderboard

Open-ended Discussion/Outstanding Questions To Address

While we believe that this proposal is a positive solution for Blur, we plan to amend the proposal based on the feedback from all stakeholders in the ecosystem: token holders, liquidity providers, the Blur Foundation, and NFT collection teams. We are requesting feedback for the following areas:

  1. Is a base platform fee of 1% the appropriate base fee amount?
  2. What are the appropriate thresholds for tiered fee discounts?
  3. How can creator royalty enforcement be incorporated into Blur’s marketplace? Due to recent events in NFT marketplace policies, the topic of creator royalties is as relevant as ever. We firmly believe that the return of creator royalties is a crucial step to the NFT market healing, but we also acknowledge that a blanket policy of 100% royalty enforcement is undesirable as users have proved they will trade elsewhere.

Next Steps:

Blur’s governance process is outlined in their documentation here. The documents allocate a minimum 7 days of discussion on the research forum before moving the proposal forward to a Snapshot vote. The Snapshot voting period will go on for 14 days and require 30M votes to reach quorum. The final vote will last 14 days and require 120M votes to reach quorum. We look forward to the community’s feedback.

Arca Investments

15 Likes
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First of all, thank you for the proposal.

To be honest, this is not the right moment at all. Volumes are already low. Switching the fees ON during these conditions is not optimal at it could’ve been during a bull period.

If ever this has to pass, please consider setting the base platform fee to like 0.5% rather than 1%. We need to keep that 0 number. 1% is too much for these conditions, that’s it. An option for 0% fees should also be considered. If you hold like maybe 1M, for exemple, you should be exempted of paying platform fees.

During bull this shouldn’t occup anyone’s mind but during poor market conditions like right now, this won’t leave the spotlights. People would always find a way to trashtalk the platform no matter what.

Added to this, you all know the protocol doesn’t have a good social image. Most of NFT users are actually hating Blur for simply what it is. This would just give an additionnal reason to feed their hate.

The optimal period to turn this ON should be after the S2 airdrop (Set for Nov 20). Why ? Because if we speculate on the upcoming features that team has been building, this could potentially align with one feature that could also be token-oriented. Just about marketing, it’s better to do that during Nov 20 or after that period.

It’s a needed utility ofc (buy back program here) but it has to come for the right moment. Let’s be honest, this is really not the best moment to turn them ON.

  1. Appropriate thresholds were never discussed before but as you guys said, we could go the same way as Binance as getting more discounts if you hold more tokens. Maybe BLUR team already has an idea for that topic.

  2. Complex topic and the main reason Opensea is criticized. Maybe Blur could come up with a brand new way to reward creators, actually we don’t know but I think BLUR bribes can also profit to creators. To resume, most problems gets back to the surface during the bear. Market is boring as fck and the NFT market condition is worse.

Turning ON Blur fees during these conditions wouldn’t be good at all. The topic is nice, but we have to address this a bit later. As previously stated, it is preferable to wait for the new features first.

If you still believe it should pass, the best day to create that topic would have been November 24th. Then, on October 31st, it will be moved to Snapshot, and you’ll have 14 days to first see what people think of it. Finally, the last vote will happen and with it the full disclosure of 3 important features that everyone is waiting for. In this case, this would give us 7 extra days to think about our votes and adjust them accordingly.

One goal : In order for the protocol to survive long-term, we need to support the liquidity. Then we can look for a way to setup a buyback program with platform fees when volumes are higher.

As a liquidity provider and holder, I am not in favor of this proposal unfortunately for now. Will definitely be positive on this after market starts heating back ! Thank you again for this nice proposal Arca team.

Have a nice day all !

7 Likes
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I think this is a great idea and a very well written proposal. I personally think this should be implemented, however, I don’t think the timing is optimal and think it makes more sense in more favorable market circumstances. If you look at basically all of crypto right now there’s been a massive outflow of liquidity and users - CEX, DEX and NFT trading volume are hitting new lows and close to pre 21 bull market levels. On a longer time frame these periods are usually not the times when platforms generate the most revenue. In fact they’re mostly irrelevant compared to bull market trading volume and thus revenue. While as a BLUR holder this proposal might seem like it could provide value to the BLUR token short-term, it could be detrimental to our market position in the current market and in the long-term do more harm than good. In my opinion our primary goal as a community right now should be to solidify our market position and further gain market share. This can come from contributors developing the Blur ecosystem through product building, community growth efforts, or new incentive treasury proposals. When the market shifts upwards, as we know it will since crypto operates in cycles, I’ll be happy to support this proposal. It’s a matter of when, not if. Thank you to Alex, Sasha and the whole Arca team for this very thoughtful and well written proposal - also looking forward to hearing other people’s opinion on this.

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I think this is a great idea and support the idea in principle.

I am partial to @Husko point about this not being the right time to implement this, given NFT volumes are so low.

Another option would be adding a take rate on the value-added services that BLUR has added to its marketplace (much like how AMZN makes more than half its marketplace revenue from services, not commissions). Today that’s just lending for BLUR (on which we could take 5-10% of the yield as an origination fee?), although in the future I would expect that to include prosumer tools (there exists a large subscription-based pro NFT trader market already).

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Dear Alex and the Arca team,

I enjoyed reading your proposal about turning on the fee switch. I actually have been waiting for a substantial player to kick off the discussion on this since the freeze has expired so thanks for starting this conversation.

I support the ideas around building utility for Blur, such as providing fee discounts. However, I have concerns.

  1. In the short term, the fee+buyback & burn could provide some support to BLUR token price (~$20 - $30K of buy pressure/day, or $600K - $1M/month based on current volumes). However, this comes at a cost. It will have a negative impact on Blur’s ability to capture and retain market share, given the hyper-competitive NFT marketplace landscape. Several marketplaces already have lower fees than <1% (e.g. OpenSea Pro)

  2. Timing. IMO this is probably the worst possible time to turn on the fee switch:

  • Users’ price sensitivity to fees is probably at an all-time high, given the bleeding floor prices and low volumes throughout the year.
  • Liquidity is already low as farmers switch out to farm FT and other opportunities. 1% fees will chase farmers away and could lead to a “death spiral” (probably not the best term but you get what I mean) in liquidity and users.

I would suggest waiting for NFT volume and interest to show signs of returning first. When prices are rising, users will not be as turned off by fees + fee generation will be significantly more substantial compared to in today’s low-volume environment.

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Great to hear the voice of the community. The blur team is quite silent in the social channels, and I am happy to see blur family sitting together and talking about the future.

I get three points to share:

(1) Market Share
As a BLUR holder, the only thing I care is Market Share, Market Share, Market Share in the long run. Anything improving market share in the long run is good for me. Switch fee is easy work, market share is hard to get.

(2) Fee
Regarding BASE fee. Blur is able to offer lower fee than any other competitors including Opensea. Blur gets Blend, which is basically margin trading. Everything else equal, we get more sales than other platform. This enables us to offer a lower fee than Opensea. (That why Binance/OKX gets lower spot fee than Coinbase, the derivatives).

We can certainly start fee from some other value-add services (more end user invisible), like margin trading.

(3) Timing

Bull market volume/revenue will be 40x of today. ETH will up 5x to USD, NFT will up 3x to ETH, and the number of sales will 3x of today.

I am not an expert on the timing, and will leave it for others to comment.

2 Likes
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Thank you for the proposal, I think it is very well written and agree in most of the points.

I think all of us know $BLUR token should have more utility in the ecosystem and I’ll be happy to support such efforts when the time is right.
However, as others already argued, I agree that path to profitability should be taken in more favourable conditions, otherwise you could discourage people from trading on Blur and lose marketshare.

There are two large pushbacks from my side

Test fees on Blend first
Where I could see the fee switch argument going is non-essential services, such as BLEND where traders already pay very variable fees and therefore they aren’t so sensitive to prices.
Also, this could be a first test of this dynamic to see what impact on market it would have.

About $BLUR Burn
One of the reasons why Blur is the best product in class is that it has the most liquidity. It has liquidity because it’s incentivised via token BLUR token.
The Blur team has been very vocal about giving >50% of tokens to community this way, therefore we can expect 1,5 bil. BLUR tokens as incentives. That means ~ 3 more seasons incentivised via inflation, but what’s next?

If we don’t want liquidity on Blur to dry out, platform fees will need to be redistributed as for example on Uniswap. Therefore, burning 100% fees won’t be good for protocol in the long run.

My proposed changes
If we want to drive value to the protocol long-term, please consider this:

  • Fees on Blur core protocol stay 0% until better market conditions
  • Fees on Blend are changed to 1% with your proposed structure of discounts for holding $BLUR
  • Fees paid are transferred to SC to buyback BLUR token
  • 100% of this is transferred back to community treasury to incentivise further liquidity in following years (this shall be changed to 10-20% token burn once protocol shows higher profitability).
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Charging fees on Blend rather than the whole protocole is a decent idea !

Thank you for the post Andy.

1 Like
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Just to support @Teng-Yan-0xprismatic post, here is two twitter posts of different people complaining about that idea of turning fees ON :

The last one is funny because there is a 0.5% minimum enforced royalties on Blur but yeah… Gives you an idea already :smiling_face_with_tear:

1 Like
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Thoughts on the Tiered Fee Discounts:

The Proposed Discounts for holding BLUR token should be made larger and wider because for the rather illiquid nature and wide spreads of NFT markets, also there should definitely be an amount to gain zero fee trading. However, i do not think it is appropriate to correlate the Discounts to “Amount of BLUR tokens held”. With the proposed concept 1000 Blur tokens would currently cost 150 Dollar to gain a “Fee Discount” but have a cost of 500 dollar a couple months ago. Conclusively,. it is much more uniformly and fair to fix the
“Fee Discount” in correlation to “Amount of BLUR held in $”. Therefore a fall in the price may be able to downgrade the “Fee Discount” tier and a rise in the price may be able to upgrade the “Fee Discount”.

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I posted my thoughts on this here: https://x.com/0xOmnia/status/1712568557949600063?s=20

But will drop it here as well, as the buyback & burn model isn’t ideal, to say the least.

I also say this as someone who doesn’t hold any $BLUR at all.

  1. The vast majority, if not all [$BLUR] farmers are already in a shittier position than they were after the end of Season 1 since insiders have mercilessly dumped the shit out of the token. This fact, and this fact alone makes farmers feel like this dumping activity will continue, and I’m >99% certain that the vast majority of them aren’t praying for the end of Season 2 so that they can take their [$BLUR] bag and hold it, stake it (eventually?) for lower fees, etc 2) The opportunity cost of holding [$BLUR] >>> paying the base fee of 1%, any smart trader would gladly pay 1% (even more as some do on OS at 2.5x the fee that’s being proposed) as opposed to holding [$BLUR]) to save a maximum of 50bps on fees, if they hold 500k [$BLUR] ($77.8k at current market value), especially with the looming risk of being dumped on ruthlessly, cause everyone knows what happens to farm tokens 3) Given that a buyback would then go to simply burn the [$BLUR] acquired, when trading volume is nearly certain to fall after turning on the fee switch, will actually end up doing worse for the token than any good, and is simply a move to scratch the ponzi itch that doesn’t inherently benefit the token in any way, nor Blur users in any way, which should be the most important concern. 4) Would be better off factoring in turning on some type of fee switch to utilize Blend, which has ultimately had an adverse effect on the collections that have been activated on Blend as “lenders” (mostly, if not all retail) move to squeeze as many points as possible and borrowers (also mostly, if not all retail) default almost certainly, because A) no one has given much of a shit about holding the underlying NFT, just taking a short term call option & B) interest rates are fucking insane, and more people care about holding onto their [$ETH] in this market than they do about paying 999% APR on loans they took that were fucked to begin with. I literally think the only collection that has done well (price wise), and hasn’t taken a hit on price & liquidity out of all of the available collections available on Blend has been

@pudgypenguins

iirc, but this is just top of head as I haven’t checked. 5) I just think this is a way to create some kind of value that doesn’t really currently exist with the [$BLUR] token itself, which only leads to further underperformance in the long run. (I do understand their position and reasoning for this as an investor though, this is likely why they were allowed to be on the cap table, you’ve got to go to bat for your port co’s)

Appendix:

Re: the fee tier incentive, asking traders to take on nearly $80k of exposure to save the maximum of 50bps sounds like a pretty poor tradeoff imo. They’d need to trade at least $8m worth of NFT’s at current market value of $BLUR, and even more (or less) dependent on $BLUR market value at any given time, in order to make even remote sense to buy and hold $BLUR to justify the value of the fee discount (as they’d still be paying $40k at current market value of $BLUR if they traded $8m worth of NFT’s and held 500k $BLUR.

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First, thank you to all that responded and provided feedback on the proposal. Our primary goal in posting on the Blur forum was to initiate Fee Switch discussions because we believe that rectifying the token is both necessary and timely, especially in anticipation of the Season 2 airdrop. With this goal in mind, we wish to recap the main points of feedback we have received and share our thoughts:

Timing Concerns Amid Current Market Conditions - We acknowledge that current market conditions do not seem particularly favorable for a fee switch. We also agree that revenues generated now will be much smaller than revenues generated in a bull market. Despite these valid points, we want to stress that time is of the essence for Blur to fix the token economics. Without a demand-side upgrade, we believe that the $BLUR token will continue to depreciate and the remaining token holders will have less incentive to stay for the next season. One option with potential is passing a KPI-dependent fee switch. (Fees are taken at higher volumes, and zeroed at lower volumes). This may not be timely enough to stop the current spiral, but this potential option should be considered for community members who do not believe it is the right time for a fee switch. Although we believe the positives and negatives of a KPI-dependent fee switch still need to be thoroughly discussed, we outlined a KPI-dependent fee switch to show that other options are available for those who do not agree with a full fee switch at this time.

Concerns About a 1% Fee Being Too High - At current $4.5M ADV (Token Terminal Data), a 1% fee will roughly amount to 8.5M tokens being burnt (~0.30% burnt of the total supply per month). At a 0.5% fee, this equates to ~0.15% of the BLUR total supply being burnt per month. Even at both of these fee levels, inflation from S2 will not be offset. Therefore, we believe the fee level should be set at a level that has the least amount of impact on market share and can be adjusted via governance initiatives once we have more data. With this in mind, we suggest that the initial fee switch be set at 0.5%, in line with OS Pro, with discount fee tiers for token holders and going as low as 0.25%.

Exploring Fees On Other Business Lines - Many forum and community members have suggested to start adding fees to other Blur business lines, such as Blend, rather than implement a full fee switch. While we maintain the belief that a complete fee switch is necessary to rectify token economics, we do not see any issue with commencing with fees on other business lines. This could potentially be executed through KPI targets or a time-lock mechanism, with Blend fees being activated before trading fees.

We are seeing many people express their opinions on what is best for the protocol going forward. We appreciate the feedback. We are happy to support the community in whatever improvements it thinks is best by continuing to push the conversation forward.

Best,

Arca team

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Another option to test this idea, along the lines of Andy’s suggestion for Blend fees, is to not enforce the fee, but just change the default fee to include this amount. A small percentage of users will likely leave this set, but it would allow some analytics to be captured around it.

I think forcing a fee is more likely to reduce volume as now most other marketplaces have conformed to Blur’s current fee. By only changing the default number, it still gives people an option while providing a bit of support for the token or DAO.

I also second the concerns brought up by xOmnia. I do not think a fee discount will be a substantial benefit nor do I think buybacks will solve the underlying issue. The token needs to provide some real value through added utility and/or clear and active DAO governance (this proposal is a great first step).

At this stage, I would suggest that it is more beneficial to take whatever fees are earned and pay them back to the core team to hire and continue building more utility for the token. To me, it’s unclear how much the core team will allow the DAO to direct development. If we are able to define features and set incentivized milestones, then I think that is a much better use of any fee generated and perhaps even worth some reduced volume. In this case, the fees earned would go to a DAO treasury to back voted upon milestones. Any remaining tokens from missed or late milestones (pro rated) could then be used to fund additional initiatives.

A pretty good example of a feature that would require effort from the core team and could be incentivized is the adjustment of point calculations to include profit as suggested here. Another task that could use incentivizing is establishing clear processes on how to get involved in the committees that may or may not exist.

Now is the time to build, as a community, for the long term. It seems futile to attempt to try to prop up the token in the short term. No one is going to be happy even with the estimated buyback amounts. It’s better there is slightly more pain now and something sustainable gets built.

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Without a demand-side upgrade, we believe that the $BLUR token will continue to depreciate and the remaining token holders will have less incentive to stay for the next season. … This may not be timely enough to stop the current spiral

First, the wording suggests you propose to enact product choices in reaction to short term price action, which in my view is ill-advised.

Second, you might say “the market is giving us feedback in the form of severe price depreciation” and to that I’ll answer: the market is giving Blur no such feedback; instead of token price, one should look at the market cap chart. It seems to me that BLUR performed very much in line with the altcoin market[TOTAL3] in almost every time period since launch. The market has been valuing the Blur platform rather consistently in line with the broader crypto alts market.

I suggest we keep the current product trajectory in-tact and not get tempted into decisions that are influenced by some conception of what token price should do or should have done. I don’t believe that’d be a levelheaded approach if we look back at it 3 years from now.

Concerns About a 1% Fee Being Too High - At current $4.5M ADV (Token Terminal Data), a 1% fee will roughly amount to 8.5M tokens being burnt (~0.30% burnt of the total supply per month). At a 0.5% fee, this equates to ~0.15% of the BLUR total supply being burnt per month. Even at both of these fee levels, inflation from S2 will not be offset.

The concerns about the fee being high are not in relation to the Blur token supply but to the effect it might have on Blur’s future dominance amongst NFT Marketplaces - dominance it likely wants to maintain[dune], especially as the NFT market recovers and grows over the next few years.

1 Like
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Think this is a good proposal overall. Some slight changes I would make are to lower the fee to 0.5% and add some of the tokens that are bought back to the community treasury instead of burning them all.

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This is actually a great idea

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This should be done especially now with Blast on Blur - volumes including alot of wash trading has increased dramatically on the Blast side