[SEP 44] Creating SafeDAO’s first revenue stream through Community-Aligned Fees

[Andre]

Link to previous discussion: [Discussion] Creating SafeDAO’s first revenue stream through Community-Aligned Fees

Title: [Draft] Creating SafeDAO’s first revenue stream through Community-Aligned Fees

Authors: @Christoph (Safe Ecosystem Foundation), @Andre (Safe Ecosystem Foundation)

Created: 2024-08-29

Abstract

This proposal introduces SafeDAO’s first revenue stream which strengthens token utility, community governance and empowers the vibrance of the ecosystem.

Proposal types

State which proposal type this proposal belongs to.
SEP: Constitutional Proposals
SEP: Governance Proposals
Other SEPs

Proposal details

Purpose & Background
As part of a larger effort toward economic sustainability, The Safe Ecosystem Foundation (“SEF”) has taken the initiative to orchestrate the first revenue stream for SafeDAO. As part of this, SEF has taken the recently introduced Native Swaps in Safe{Wallet} as an opportunity to create an alignment of ecosystem products and solutions with the community brand. More specifically, SEF utilizes its Safe-related trademarks to facilitate revenue generation of third-party integrations within Safe{Wallet} via a license model with Native Swaps as the first integration of this kind. It should be particularly emphasized that Safe{Wallet} does not extract any value around Native Swaps. Instead, revenue streams are pledged to SafeDAO. The intention is to give SafeDAO more agency regarding the use of funds. For details around sustainable ecosystem building and the concept of Community-Aligned Fees, see here.

This proposal suggests ratifying that SafeDAO accepts the revenue transfer for Native Swaps through the Safe{Wallet} integration.

Fee Conversion and Acceptance of Funds
For Native Swaps, a fee conversion mechanism collects the fees in the assets accepted by CoW Protocol, using the proceeds to buy SAFE tokens on the open market and then (upon ratification) brings them under community control. This means, upon ratification of this proposal, the revenue streams will be transferred to an account which is designated for SafeDAO. As such the SEF or a fully-owned subsidiary serves as the legal wrapper for the revenue streams of the SafeDAO treasury.

Resource Allocation
The funds received from 3rd parties would be part of SafeDAO’s treasury and as such they can be allocated according to SafeDAO’s governance and resource allocation frameworks (i.e. Outcomes-Based Resource Allocation).

Annex 1:
Fee details:

For more details check Introducing TWAP Orders and Tiered Fees in Safe{Wallet} Native Swaps, How does the widget fee work for native swaps? | Safe{Wallet} Help Center and Support. and Cowswap - Partner fee calculation.

Effects and Impact Analysis
If the proposal is accepted, the revenue generated from Native Swaps will be allocated to SafeDAO and become part of its treasury. As such it can be allocated according to SafeDAO’s governance and resource allocation. This will be the first income stream for the DAO and allow for a more sustainable resource allocation governed by SafeDAO.

Looking at the generated fees during the first month of Native Swaps and considering a hypothetical stagnant development, this income stream would create an annualized amount of ~$2.5M of community-aligned fees already. However, limiting an assessment to such a conservative view would completely disregard the fact that there are multiple areas for optimization, e.g. raising awareness for the feature and rolling it out to more networks.

If the proposal is rejected, the revenue generated from Native Swaps will remain under the control of the Safe Ecosystem Foundation. It will be allocated in line with the Foundation’s purpose: fostering the Safe ecosystem. However, this revenue will then not form part of the SafeDAO treasury and will not be governed by token holders or SafeDAO delegates.

Alternative Solutions
An alternative to the introduction of the community-aligned fees would be not to focus on financial sustainability.
Another alternative would be not to have the revenue governed by SafeDAO.
We don’t see this as a valid alternatives as this will limit the DAO in its ecosystem funding.

Implementation
Own implementation possible
Own implementation but with funding (how much % to implementation)
Request for technical support through Safe matter experts:

• Who is needed?
• Did you reach out?
• Is there a roadmap?

For the implementation the SEF or a fully-owned subsidiary of SEF under the surveillance of the Foundation Council will operationally set up a wallet attributed to SafeDAO with the same setup as the SafeDAO treasury.

Open Questions

None

Acknowledgements
Will be added during the discussion.

Copyright

Copyright and related rights waived via CC0.

[karpatkey]

karpatkey appreciates the thoughtful proposal by @Christoph and @Andre. Introducing a community-aligned revenue stream is an essential first step towards SafeDAO’s economic sustainability and overall ecosystem growth.

We have structured our feedback along 3 themes.

Theme 1: Native Swap implementation

karpatkey is excited to see the success of a joint initiative between two thriving products that spun out of the Gnosis ecosystem - Safe and CoWSwap. We have been serving and partnering with both for a long time and are proud to continue to do so.

We believe the Native Swap revenue implementation is a natural and healthy first step to take, as users in the space have proved willing to pay for swapping assets. Furthermore, Native Swaps and TWAP Orders in the context of Safe’s positioning are value-added as they offer convenience, enhanced security and a smoother execution experience in general.

It is also important to note that the implemented pricing is competitive compared to peers in both the individual user segment (~0.8-0.9% across MetaMask, Zerion and Rainbow) and the institutional custody segment (~0.2% outgoing tx fee for Fireblocks basic package).

Other use cases meet existing onchain needs in a way that has strong potential for monetisation. Building widgets around them can further leverage Safe’s role as the default infrastructure for managing assets on-chain. Examples we see as high potential include:

• Recurring payments
• Yield generation and staking
• On/off-ramp solutions

karpatkey is committed to support the SEF and other stakeholders in the further exploration and implementation of the above identified value-accrual avenues.

Analysing onchain data could unveil other such examples.

Theme 2: Fee conversion

karpatkey serves as Treasury Manager for leading DAOs across the ecosystem, and that extensive experience has shown us the challenges faced by treasuries composed solely of a project’s native token. We believe the Native Swap implementation presents a unique opportunity for SafeDAO to gradually and seamlessly diversify its holdings. In this context, we recommend converting all generated fees into stablecoins if feasible at this time.

Considering the cyclical nature of the Crypto market, the current fee implementation has the highest potential to generate revenue during increased trading activity, market euphoria, and inflated valuations. Accumulating stablecoins during these times, instead of buying back SAFE tokens, would enable SafeDAO to build a strong war chest that can be further grown through onchain yield. Those resources can then be leveraged to execute strategically timed buybacks of the SAFE token in periods of market weakness and suppressed valuations.

In case legal, operational or technical constraints prevent the implementation of the recommended adjustment to the fee conversion at this time, we recommend that this measure be implemented as a future improvement. karpatkey, wherever applicable, would readily support the SEF in overcoming any pending constraints.

Theme 3: The future

As outlined, this proposal is an essential first step. In addition, we see three Important opportunities to evolve the value capture mechanism to solidify Safe’s leadership and central role in the onchain ecosystem. We are excited to collaborate with the SEF and other stakeholders to develop those further:

Firstly, extending this model to Safe’s vibrant ecosystem of front-end applications and other partner integrations presents an enormous opportunity. More specifically, we see a future where the front-end, which originates a tx, captures part of the revenue while another part is relayed to the DAO. Such a direct approach is superior to capturing all income in the DAO and then designing complex, high-friction, and often unnecessarily political processes for the DAO to support front-end builders and return value to them. A16Z’s recent piece on monetisation also provides support for this direction.

Secondly, in alignment with the industry’s ethos, we would love to explore reducing reliance on wet code and legacy structures by bringing more of the logic of such partnerships onchain. To provide more specific ideas here, we need to better understand the current license model. However, we firmly believe such a pursuit would be impactful for the entire industry, and Safe is well-positioned to be a pioneer.

Finally, there are interesting long-term implications worth considering. With the success of Safe and this revenue model, the number of partners interested in becoming the “default” widget for a given action (e.g. swap/stake/earn/bridge) will grow. This will create a need for a curation mechanism that is not reliant on central decision-making. Forum-based governance is poorly suited for serving such specific tasks. We believe there will be an opportunity for “token curated registries” where SAFE holders can stake or re-stake their tokens towards securing specific implementations in exchange for a share of the revenue such implementations generate. This presents a powerful mechanism to return value directly to token holders at scale.

Conclusion:

As Treasury Manager and strategic partner to the Joint Treasury (JT) of GnosisDAO and SafeDAO, karpatkey remains committed to supporting the SEF in driving the implementation of this proposal and the avenues for Safe’s financial sustainability it opens. We are excited to engage with the community on these initiatives.

[v3naru]

As a delegate with sufficient voting power, I believe this proposal is ready to move to a vote.

[Nneoma_StableLab]

As a delegate with sufficient voting power , I consider this proposal ready to move to a vote.

[jthor]

Why are there Tiers to the fees?

[LuukDAO]

I am a Safe Guardian with sufficient voting power , and I believe this proposal is ready to move to a vote.

[bernard]

As a delegate with sufficient voting power - we believe that this is ready to move to a vote.

[BraveNewDeFi]

I am a delegate with sufficient voting power, and I believe this proposal is ready to move to a vote.

[Avantgarde]

As a delegate with sufficient voting power, we believe this proposal is ready to move to a vote.

[auryn]

As a delegate with sufficient voting power, I believe this proposal is ready for a vote.

[Denham]

As a delegate with sufficient voting power, I believe this proposal is ready to vote

[jthor]

I have concerns about the tier system and want to know what the rationale behind it is (couldn’t find this anywhere).

If there is a strong technical reason for this then that might be ok. However, right now the optics of this fee structure doesn’t look very good. Is Safe just favoring big swaps with lower fees, while putting an outsized tax on less wealthy individuals who do smaller swaps?

[Andre]

Hey @jthor, thanks for bringing up these concerns.

First of all, the highest fee is by far lower than on many self-custodial wallets. For example, MetaMask charges 0.875% on every swap, regardless of size, while Safe’s Native Swaps, powered by Cow Protocol, offer much more competitive rates, especially at lower volumes.

@jthor

Is Safe just favoring big swaps with lower fees, while putting an outsized tax on less wealthy individuals who do smaller swaps?

The fee structure gives significant benefits to small traders and even greater incentives for larger traders. This means even for smaller swaps, fees are lower than what platforms like MetaMask or Rainbow charge.

@jthor

I have concerns about the tier system and want to know what the rationale behind it is (couldn’t find this anywhere).

What the structure aims to do is find the right balance across different user segments. The tiering incentivizes larger traders with lower fees than smaller traders. We believe this encourages them to be able to swap larger volumes and contribute to the growth in TVP (Total Volume Processed).

[jthor]

@Andre

The fee structure gives significant benefits to small traders and even greater incentives for larger traders. This means even for smaller swaps, fees are lower than what platforms like MetaMask or Rainbow charge.

Tbh, this really rubs me the wrong way. It goes against fairly core values of the crypto space, namely that transactions are treated equal. It’s not about higher or lower than MM, but about fairness.

@Andre

What the structure aims to do is find the right balance across different user segments. The tiering incentivizes larger traders with lower fees than smaller traders. We believe this encourages them to be able to swap larger volumes and contribute to the growth in TVP (Total Volume Processed).

The theory here being that the suggested fee structure would bring more revenue than chanrging all users the same? To me it seems really unclear that this would actually be the case.

You provided no argument as to why you believe that the suggested fee structure brings more TVP.

[adamhurwitz.eth]

The Safe proposal for revenue with CoWSwap’s built-in trade feature is a great start! There’s dozens of well crafted Safe apps outside of the native app.safe.global.

There’s a huge opportunity to make it easier to create 1,000s of apps/features built directly into the native app.

• Safe ecosystem of 1000s of built-in apps with defined min specs makes it easy for users while having high quality
• The native app is most battle tested with >$100B in stored assets
• Any new Safe app with unique features has to be audited at a bare min to use with meaningful funds secured in it. Also, using a new Safe app can fragment the features you want to use that may exist across different apps.

These unique Safe apps could also earn revenue both from their standalone experience and from built-in native Safe apps. Den is a great example of a Safe app with useful features like paying for onchain actions with assets on Safe directly, cross network bridging, etc.

I wonder if earning revenue from built-in features/apps on native Safe app would be an interesting opportunity for them sharing revenue with the Safe ecosystem?

[lukas]

I’m not sure there is a right or wrong, especially if the thing to maximize on would be “fairness”.

As you could argue everyone paying the same nominal fee for a swap would be fair. But you could also argue that everyone paying the same percentage fee would be fair as well.

A tiered system is somewhere in between those extremes.

Generally, it’s quite common for exchange fees to be tiered, e.g. see the coinbase CEX fee tiering: https://help.coinbase.com/en/exchange/trading-and-funding/exchange-fees

I think it’s fair to question on the impact on total fees. Intuitively it makes sense to me that users that incur a large nominal fee have a bigger incentive to compare quotes across different solutions whereas for smaller nominal fees the “convenience factor” prevails. Also CEXs applying a tiered systems seems to support this as I do not expect them to optimize on fairness but on revenue.

[jthor]

If the goal of the fee structure is to optimize revenue (which is fine) then that should be stated up front. It’s hard to reason about a suggested fee structure without knowing what the goal is.

[amanwithwings]

As of September 30th, this proposal has been ratified.