SCCP-169: Update Parameters of Dynamic fees

Simple Summary

This SCCP proposes the following changes to Dynamic Fees parameters:

• Increase the exchangeDynamicFeeThreshold to 35 bp from 25 bp
• Lower the exchangeDynamicFeeRounds to 3 rounds from 10 rounds
• Decrease the exchangeDynamicFeeWeightDecay to 0.6 from 0.9

Abstract

The parameters being updated are as follows:

• exchangeDynamicFeeThreshold is the minimum change in price above which dynamic fees are levied. A larger threshold leads to lower dynamic fees.
• exchangeDynamicFeeRounds is the length of the look-back window. The shorter the lookback window, the less is persistent the impact of historical price volatiltiy on dynamic fees.
• exchangeDynamicFeeWeightDecay is the coefficient applied on dynamic fees from the previous round. The lower the decay factor, the faster dynamic fees revert back to zero.

Motivation

The primary motivation is to improve the trading experience without increasing the risk of oracle latency arbitrage significantly.

The below table showcases stats on the decrease in fees when moving from the previous dynamic fee configuration to the new one, as well as the average amount of time fees stay above a threshold:

Fee	Ticker	Mean	Std	> 50 bp	> 75 bp	> 100 bp
Previous Config.	eth	44 bp	22 bp	1550 sec	792 sec	630 sec
	btc	42 bp	19 bp	1384 sec	635 sec	256 sec
	link	46 bp	19 bp	1350 sec	690 sec	546 sec
	sol	43 bp	15 bp	1094 sec	350 sec	122 sec
New Config.	eth	27 bp	7 bp	216 sec	203 sec	61 sec
	btc	26 bp	5 bp	76 sec	59 sec	0 sec
	link	26 bp	5 bp	181 sec	118 sec	0 sec
	sol	26 bp	4 bp	117 sec	116 sec	0 sec

The below table showcases the change in oracle latency when moving from the old fee regime to the new one. As can be seen, the oracle latency does not exceed 50 bp in most extreme cases, with 50 bp being the cutoff needed by latency arbitragers that aim to cover the base fee of the round trip.

Oracle Latency Delta	Ticker	99%	99.50%	99.90%
Previous Config.	eth	-4 bp	14 bp	45 bp
	btc	-2 bp	20 bp	58 bp
	link	-4 bp	14 bp	45 bp
	sol	-2 bp	20 bp	58 bp
New Config.	eth	39 bp	53 bp	55 bp
	btc	8 bp	32 bp	66 bp
	link	11 bp	30 bp	62 bp
	sol	33 bp	45 bp	61 bp

Copyright

Copyright and related rights waived via CC0.