Zapper – Brainstorming on possible business models and path toward sustainability

Hi there :slight_smile:

Posting here following my quick exchange with @Seb on Discord.

I have been a long-time supporter of Zapper, I love the product and I am certainly in favour of the app charging a fee or generating revenue in some form to remain sustainable in the long run, this is a necessity.

That being said, I was quite shocked by the level initially announced on Medium. 0.4% on all zap-in and zap-out, and saving deposit/withdrawal seemed outrageously high to me. This is more than the typical 0.3% fee a user pays for a trade on an AMM, except that there is not liquidity provider that put capital at risk to remunerate here, it would 100% go to Zapper. And this was on top of the other fees users were already paying to the other protocols involved in a zap + gas fees. I also seriously doubt this would have been outweighed by any saving enabled by a zap vs. doing the operations manually. It must certainly be a better way, one that does not turn Zapper into a significant rent-extracting layer of the DeFi ecosystem.

Following strong feedback, Zapper proved its community-first approach by cancelling the decision to add fees. Thanks a lot for that :slight_smile:

While this is a great news for the community, it doesn’t change the fact that Zapper need to find ways to monetize to remain sustainable in the long term. I am starting this thread to share ideas and get feedback from other community members and the Zapper Team (maybe those conversations will seed a possible transition towards a DAO). Here are some possibilities:

1) Fees on zaps and savings, but magnitude smaller than what was initially proposed:

  • Zapper is a great product that already managed to integrate with a significant part of the DeFi ecosystem and simplified the life of thousands of users
  • This is just my opinion but I think the business model should be to target the largest possible volumes with a very narrow fee that users will not feel/be happy to pay for the convenience
  • I have in mind 0.05% max (this should be a hard cap), but I would even recommend going lower, like 0.02% or even 0.01%
  • The lower the fee, the less people will mind and the higher the volumes. This is pure profit to Zapper anyway and it should grow beautifully as DeFi continue gaining adoption
  • Initial fee level should be based on community feedback and should (at the appropriate time) become a parameter controlled by the DAO
  • Questions to Zapper Team:
    – Could you share aggregate usage data overtime (volume of zap-in/out, volume of savings, volume of exchanges, volume of bridges)
    – Any other data you have available like number of active users overtime, breakdown of the volumes above by cohort (e.g. top 10 user = 50% of volume, top 25% = 70%, etc.)
    – Maybe you can share with the community any form of reporting you prepared for your investors? That would help us better understand Zapper usage and have more informed discussions (especially with regard to what would be a reasonable level of fee from Zapper’s perspective)
    – If we have talented developers in the community, maybe some could help setup some nice Dune Analytics dashboards?

2) Fees based on how much user save in gas fee by using Zapper

  • Zapper would estimate the total gas cost for the user to do a given transaction step-by-step and compare that to the actual price using Zapper. As an example, let say doing step-by-step it would cost $250 in gas vs. $200 before fee using Zapper, then Zapper would take [50%] of the $50 saving = $25 fee; Total cost to user = $225, still $25 cheaper than doing step-by-step = win-win :slight_smile:
  • The calculations for both the estimate of the step-by-step price and the Zapper fee should be fully transparent for the user
  • The % of gas saving charged by Zapper should (at the appropriate time) become a parameter controlled by the DAO
  • Question to Zapper Team: Do you have any data on user savings you could share with the community?

3) Selling data

  • Many players in the crypto space make a living by selling data through their API (Etherscan, Glassnode, IntoTheBlock and other analytics services; Oracles and even ETH Gas Station)
  • Question to Zapper Team: What kind of valuable data is unique to Zapper? (At the top of my mind, I can think of: tracking whales’ movements / significant moves executed via Zapper; Maybe pools APYs (could be useful for anyone trying to automate a strategy rotating capital based on yield; having stat overtime could be a big plus))

4) Taking a cut of profits on liquidity provided to eligible protocols

  • I have in mind Yearn Parentship Programme (Become a Yearn Partner) which allows any protocol that integrates Yearn vaults to earn up to a 50% profit share from their contributed TVL
  • There are probably many other similar parentship programmes that already exist or could be created
  • Question to Zapper Team: Are any such partnership already in place (for example with Yearn)?

5) Taking advantage of MEV / gas-less orders

  • I have in mind what the Alchemist team has been doing with MistX (Introducing mistX - mistX) implementing gas-less transactions bundled using the Flashbots technology to protect them against front running
  • Instead of paying gas, users pay a miner tip and a percentage of it is kept by the mistX protocol
  • Maybe there is something along those lines that could be implemented. Maybe some partnership with MistX would make sense where you would direct them transaction volumes and share the percentage of the miner tips they receive
  • Of course, to make sense, this should remain cheaper for the users than option 1) above
  • In any case, it could be a cool feature to add at some point

6) NFT

  • Maybe NFT could be the way – that’s what Seb hinted towards in the latest Medium post where he referenced this Tweet
  • One idea on that front could be to give some utility to the existing Zapper NFTs (and/or the new ones to come), for example users with a total Net Worth of up to [$1.0m] will be able to see the details of all their assets, but beyond that you would need a certain NFT to be able to unlock the full view (e.g. The Zapper Pill allows you to see up to [$1.5m] while you will need to have Zappy for portfolio above [$50m])
    – I like this idea because it doesn’t penalise small investors and put the charge on larger users who can afford to spend a few Satoshis on an NFT and contribute to the success of Zapper at the same time
    – The thresholds would have to be picked carefully though, to make sure they make sense (e.g. if there are 14.7k Zappy NFT in total, but 100k users with a portfolio above $50m, then this threshold should be raised so there is not such an imbalance between supply and demand, which could lead to crazy high pries resulting in some of the largest wallets simply deciding not to use Zapper)
  • Different utility could be given to the next generation of NFTs, e.g. fee reduction if a fee structure has been put in place (this may make sense for a whale user for whom even a 0.01% fee is a meaningful absolute amount)
    – I like this idea less because, in a way, it allows whales to become first-class citizens that pay lower fees than common users simply because they can afford an NFT, but this is debatable. We can also argue that their large transaction volumes contribute more $$$ to the protocol and they can be rewarded with a discount for that (especially since they would have pay for it in the form of an NFT)
  • Other possible utility:
    – Boosted token distribution rewards in case there is a Zapper token launch with an LP incentive programme
    – Access to additional feature, such as investments P/L (ideally overtime). I am sure quite a few users will be happy to pay for that, assuming it is well executed. I know I would.
  • Assuming those NFTs are in finite supply, this should create an active secondary market for the NFTs, particularly in the early days while we are still in price discovery phase; but I would also expect trading to continue in the longer term as users’ circumstances change
  • Zapper would receive a [9%] cut on every NFT secondary transactions and the original NFT minter [1%] (so there is a long-term incentive for original minters to sell the NFTs they don’t need)

I will stop here as this post is already very long. I hope this will trigger further productive discussions with the community and the Zapper team which, again, is doing an amazing job and developing a fantastic product at light-speed!

16 Likes

Amazing thread. Appreciate your thoughts. I definitely think a per transaction fee is the simplest model to start with. And I agree that something between 0.01% to 0.05% is reasonable, the lower the better.

12 Likes

@3.1415r Appreciate the post! It’s nice to see a community that cares enough to contribute in this way. In addition to your suggestions, we have some yet-to-be announced products that we will be releasing which we do intend to monetize. These products revolve around farming and dollar cost averaging.

To address some of the points you’ve brought up:

  1. A point we’ve often seen brought up is that our initial fees were higher than those of many AMMs. Here’s some context as to why that fee level was chosen:
  • A Zap is more complex than a simple swap and a user would be hard pressed to compute the exact ratio needed to enter a pool with minimal residual (uniswap, sushiswap, etc.) at execution time like the Zaps do. We also find the optimal routes for swaps, leveraging private market makers, and splitting swaps among different exchanges to minimize both slippage and gas usage. If you’ve had a look at the Zaps you may notice that we often perform swaps which result in a higher USD total being received than was used as input (i.e. positive slippage). Some other advantages are fewer transactions, less exposure to gas price volatility and meta-transactions.

  • That said, we’ll keep assessing whether or not it would be appropriate to add fees to Zaps at a level that is more digestible to our users and partners.

  1. Zaps generally save a minimal amount of gas as most of the same actions are carried out regardless of whether a Zap is used or not.

  2. This is something we are actively assessing but is something have to be careful about. Ideally we’d like to maintain and increase the mindshare of Zapper. If we make our data available to all parties who are willing to pay for it (similar to Etherscan), this may erode our position. If users are able to see their balances on various front ends (powered by Zapper), they may choose to never visit Zapper or may not even be aware of our existence as the market grows. Ultimately we’re a dashboard company and not a data company (at least for now)

  3. This is something we are actively pursuing but has been excessively difficult. Ultimately many protocols are unwilling to pay for the volume that Zapper facilitates. The most common rebuttal we’ve heard is that the service we provide is for the user and not the protocol (despite our users adding significant TVL to a variety of protocols).

  • We’ve been working closely with Yearn for several months trying to hammer out a revenue sharing deal but it has been pretty slow going (Yearn’s front ends are powered by our Zaps)
  1. Will have to look more into this one!

  2. My opinion on this is that restricting users from seeing their balances with an NFT lock is not the way to go. One of the truths we operate under is that users want to see their balances and restricting this in anyway will simply push users to other platforms. Restricting higher net worth individuals with this mechanism may deter them from using transactional features on Zapper unless they are heavily invested in the platform (i.e. actively participate in gamification and acquire the unlock NFTs).

  • Fee reduction for holders of our NFTs is a great suggestion and would definitely be welcome. One consideration with this model is that it would require additional logic in each Zap resulting in overall higher gas costs for users.

  • Adding additional utility to our NFTs is top priority for Season 2 and we are confident that this additional utility will foster an active market on Open Sea and other platforms from which Zapper could generate some additional revenue.

Thanks again for your contribution here, it’s much appreciated!

14 Likes

Very glad to see productive exchanges here, and expecting Season 2 to come

10 Likes

Thanks for your detailed response, very helpful additional context and nice to be able to have an open dialogue :slight_smile:

A Zap is more complex than a simple swap and a user would be hard pressed to compute the exact ratio needed to enter a pool with minimal residual (uniswap, sushiswap, etc.) at execution time like the Zaps do. We also find the optimal routes for swaps, leveraging private market makers, and splitting swaps among different exchanges to minimize both slippage and gas usage. If you’ve had a look at the Zaps you may notice that we often perform swaps which result in a higher USD total being received than was used as input (i.e. positive slippage). Some other advantages are fewer transactions, less exposure to gas price volatility and meta-transactions.

Maybe an easy win would be to capture any positive slippage as profit for Zapper. As a user I would be happy with that.

These products revolve around farming and dollar cost averaging.

Cool! In that spirit, here are two ideas I have that might be of interest:

  • Ability to sign a transaction for which the execution will be delayed till gas price drop below a defined level (a bit like a limit order, except that the trigger is not the token price but the gas price). This could be helpful for non-urgent transactions like collecting farming rewards for example
  • Ability to bundle a few transactions that way (e.g. IF gas price < 25 gwei, THEN collect reward X from pool Y, AND THEN sell reward X for ETH)

Very much looking forward those upcoming products release! Awesome Zapper :heart:

14 Likes

Amazing proposal :smiling_face_with_three_hearts:, I think your ideas will make zaper better

12 Likes

I came here to study :grinning:

11 Likes

I very much look forward to the arrival of nft in the second season, hoping to bring empowerment to nft, such as NFT mining, NFT synthesis of rare attributes, and unexpected surprises for old users (such as airdrop candy)!