Block Rewards vs Swap Fees
Breakdown the yield from block rewards vs swap fees, both total and by pool. Show how the proportions have changed over time since the network started.
Introduction: Swap fees and block rewards in Thorchain
THORChain is a decentralised cross-chain liquidity protocol which does not peg or wrap assets, it simply determines how to move them in response to user-actions. THORChain's key objective is to be resistant to centralisation and capture whilst facilitating cross-chain liquidity. THORChain only secures the assets in its vaults, and has economic guarantees that those assets are safe.
There are four key roles in the system:
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Liquidity providers who add liquidity to pools and earn fees and rewards
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Swappers who use the liquidity to swap assets ad-hoc, paying fees
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Traders who monitor pools and rebalance continually, paying fees but with the intent to earn a profit
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Node Operators who provide a bond and are paid to secure the system
Methodology
Two different queries have been executed. In the first one, 3 CTE are created. One where the block rewards per day are selected directly from the thorchain.block_rewards
table, another where rune_liquidity_fee
are aggregated per day from the thorchain.pool_block_fees
table and another one where liq_fee_in_rune_e8
are aggregated per day from the thorchain.swap_events
table. These 3 CTE are joined to show the relation between the three metrics over time.
On a separate query, the swap fees are calculated by pool.
Block rewards are calculated as a function of the total RUNE reserves, the emission curve and the blocks per year. 2/3 of the reward is paid to node operators and the rest to liquidity providers. The emission curve is designed to achieve an 20% APR at first and reach a 2% APR after 10 years. At that point the network will be substained by fees.
This analysis will break down the block rewards and liquidity and swap fees since network's inception.
Figure 1. shows the block rewards, the liquidity fees and the swap fees per day since April 2021. The block rewards are following the schedule controlled by the emission curve. Taking a closer look, the rewards decrease very slightly with each day but have step increases on certain intervals, probably caused by changes in the other parameters (Reserves and blocks per year). Both fees are highly volatile ad dependant on volume.
Figure 2. shows another visualization for the same data, this case as cumulative sum. Up to date, a total of 8M block rewards, 1.8M swap fees and 0.8M liquidity fees have been distributed.
Figures 3. and 4. show the swap fees by pool, daily volume in a bar chart and cumulative in a line chart. Figure 3. is difficult to interpret and could be use as a colorful NFT, but Figure 4. show the top pools by volume on swap fees. ETH pool is the top pool with 440k RUNE. BUSD with 350k and BTC with 207k follow. USDC, BNB and YFI are next, hoovering around 100k.
Conclusion
Block rewards are still dominant over fees as the yield generator keeping the network working. This trend is supposedly reverting and in 10 years network should be maintained from fees. There is a long way forward...
I couldn't find a definition of liquidity and swap fees as used from the Flipside tables.