Lesson Structure:

1/ What is Swap surplus collection

2/ The 1inch DAO discontinues swap surplus collection

3/ Problematic and solution

1/ What is Swap surplus collection

In the context of DeFi, "swap surplus collection" refers to the process of collecting or distributing surplus funds that are generated from decentralized swaps.

When users make swaps, they pay fees or contribute liquidity to pools. These fees or additional tokens added to the liquidity pool can generate surplus funds over time.

The process of collecting surplus swaps involves redistributing or distributing these surplus funds to stakeholders in the ecosystem.

A swap surplus is not a trading fee, and does not occur with every swap.

In simple terms:

When users make swaps on ( example: 1inch ), the platform searches for the best available exchange rates across multiple DEX to optimize the trade. Sometimes, due to market fluctuations, the actual swap rate at the time of execution might be more favorable than what was initially shown to the user.

Swap surplus collection in 1inch captures the difference between the initially shown rate and the actual executed rate. If the user receives more tokens or funds than expected due to this positive slippage, the surplus amount is collected and distributed back to the users.

For example, a user wants to swap 0.1 ETH for USDT and is offered a rate of 1,800 USDT per 1 ETH. The user expects to receive 180 USDT for their 0.1 ETH, but between the submission of the transaction and its execution, the swap rate changes to 1,850 USDT per 1 ETH. The user will now receive 185 USDT for their ETH, of which 5 USDT is a swap surplus. - blog 1inch

2/ The 1inch DAO discontinues swap surplus collection

It is very important that you read the snapshot!

[1IP-28] Discontinue Swap Surplus Collection:

The primary motivation behind this proposal is to enhance user experience on the 1inch platform.

For the DAO, the Swap Surplus revenue stream has proven to be highly inconsistent over time, with monthly collections varying significantly. In December 2021, revenue collection was approximately $2 million per month, but in recent months, it has dwindled to a few hundred thousand.

For users, the Swap Surplus collection has led to unpredictability. Though the vast majority of trades are not impacted by Swap Surplus, a small minority have experienced reduced returns of up to 10%. By discontinuing the collection of Swap Surplus revenue, we aim to create a more consistent trading experience for all users.

quote from [1IP-28] Discontinue Swap Surplus Collection

3/ Problematic and solution

Collecting swaps surpluses helps maintain liquidity on the platform and can affect the prices of traded assets. If stopping collections reduces liquidity, it could lead to a wider spread between buy and sell prices, which could make it more difficult to obtain better terms for users.

By focusing on long-term growth and customer satisfaction, the 1inch network will do its best to strengthen its market position, potentially leading to increased revenues in the future.

In the short term, however, this proposal would mean a complete cessation of revenue collection for the DAO treasury.

The decision to discontinue swap surplus collection by the 1inch Network may have short-term implications for the revenue collected by the DAO treasury. The surplus funds that were previously collected will no longer contribute to the treasury's balance. However, this decision is driven by a focus on long-term growth and user satisfaction.

By prioritizing user experience and optimizing transaction costs, the 1inch Network aims to enhance its competitiveness and attract more users. This could potentially lead to increased trading volume and adoption of the platform, ultimately resulting in higher revenue generation through other means, such as transaction fees or value-added services.

While the immediate impact may be a temporary cessation of revenue collection, the long-term benefits of this decision lie in fostering user loyalty, attracting new participants, and strengthening the position of the 1inch Network in the DeFi market.

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