xINCHa is an ERC20 wrapper for the 1INCH token and the 1inch staking process. xINCHa holders express a long term bullish view on the value of 1INCH and 1inch staking rewards. xINCHa is a set-and-forget token, requiring no active participation from holders. xINCHa holders participate in governance via the Buchanan Mandate, where voting decision-making/deliberation is anchored around the doctrine of center-right economist James Buchanan. Read more about Mandated Governance here.
xINCHa: Buchanan votes to lower frictions and remove restrictions for users of the protocol. In exercising the Mandate, the fund seeks to promote a nimble, lightweight and efficient protocol that limits vested bureaucratic interests and constrains the power entrusted to governance.
The swap fee is a fixed fee charged on each trade completed via the liquidity protocol. In order to support high volumes of low cost transactions, the fund votes for a 0.2% swap fee, slightly below industry standard. The 1inch AMM is differentiated in that LPs capture arbitrage and frontrunning profit in a way that competitors do not. Recognizing that 1inch has alternative sources of fee collection and exists in a competitive space, the fund supports a lower swap fee.
Decay time is a technical innovation by the 1inch team to slow the change in spot price, capturing a share of arbitrage profits for LPs at the expense of arbitrageurs. The fund votes for a 4:00 minute decay, inline with current rough community consensus. The fund will continue to monitor community discourse, but neither instance of xINCH will take an opinionated view on Decay Time until more information is known about the governance implications of this highly technical protocol configuration.
The referral reward is collected by the dApp, wallet, or other integrator directing trades to 1inch Liquidity Protocol. While there is a legitimate need to encourage community development and reward beneficial integrations, the referral reward should be set at a modest level to limit capture of protocol revenue by rent-seeking actors. The fund votes for the minimum allowable level of 5% for this governance metric.
The governance reward is the share of swap and price impact fees to be allocated to token holders for staking in governance. Buchanan's work on constitutional economics posited that the most efficient systems had a clear and transparent alignment of incentives for both the users and the governors of the system. In order to attract and maintain the most robust governance participation by stakeholders invested in the protocols success, the fund votes for a max 10% allocation to governance reward.
Price Impact Fee
The price impact fee is an innovative addition from 1inch, contributing to the growing toolset of AMM management and governance. Charged on top of the swap fee, it is proportionate to the price slippage of a trade. This feature attempts to add a dynamic pricing component, targeting traders with low elasticity of demand, i.e., those who are willing to pay more for immediate settlement. The fund advocates for a high-end price impact fee as it is precisely the type of process architecture design that supports protocol users instead of allowing value leakage to outsiders. With that said, the fund supports a higher fee value without completely maxing out the fee, in order to maintain a low friction, high efficiency protocol. Some elements of the Buchanan Mandate are in slight conflict on this voting metric, but we believe a 80% price impact fee strikes the correct balance.
Buchanan's work on constitutional economics emphasized that undue administrative and bureaucratic power tended to burden systems with waste and corruption. Consistent with those precepts, the fund supports a reward distribution where the majority share is distributed to token holders (termed "Governance"). The fund votes for 80% allocation to Governance, a 15% allocation to Operation and a 5% allocation to Referrers.