Centrifuge Protocol Fees

[prankstr25]

I agree, I think the protocol needs to have sustainable revenues and treasury to support long term growth, perhaps initiate token burns, etc. I believe charging issuers a percentage of AUM would be fair, I think a technology intermediary could charge 50bps or so. I dont believe most issuers are set up like funds (at least we are not), so we make our revenue on the originations and spread.

Could LPs also pay a small fee taken off their top of their gains?

[ImdioR]

@roollie

As a core contributor who speaks often to the issuers,

Would be great to receive more feedback from issuers.

@prankstr25

I agree, I think the protocol needs to have sustainable revenues and treasury to support long term growth, perhaps initiate token burns, etc.

Thank you prankstr25 for your feedback.

[ImdioR]

Good day!
We would like to hear the opinion of our Issuers about Protocol Fees.

Some of the questions:

• What currency of the fee we should implement in your opinion?
• Structure of the initial fee implementation? Any ideas, or suggestions?
• Who is the fee charged to (Issuer, Investor or both)?
• What is the fee based on? Is it a fixed fee or variable?
• Fees are paid into the on-chain treasury?
• Should we have an insurance pool or some supply set aside to cover pool losses?

@roollie

We can also consider charging issuers a % of AUM like a technology provider, and investors on a per-trade (investment and/or redemption), much like how Fidelity charges per stock trade. The issuers can choose to pass on the costs to investors in the form of % of AUM or some sort of performance fee for the junior tranche (i.e. if junior returns more than x%, issuer gets y% of the delta). Perhaps we should also discuss what are standard fees that go back to the protocol to support its growth, and what are fees that issuers can turn on/off that go to the issuers, which should encourage healthy competition among issuers as well.

@ImdioR

Would be great to receive more feedback from issuers.

@Fabien @AleG @JeremyKim @FortunaFi @REIF @SAM226

[prankstr25]

Here are my thoughts on this topic:

@ImdioR

• What currency of the fee we should implement in your opinion? - CFG
• Structure of the initial fee implementation? Any ideas, or suggestions? - Having a couple options is always best, as @roollie mentioned, the possibility of charging both the issuer and the investor is appealing, and the issuer can decide what amounts, and if its’ a transaction fee or a “management fee” type of an arrangement. Overall, I believe a total of around 50 bps is what I have seen other tech-enabled providers charge.
• Who is the fee charged to (Issuer, Investor or both)? - option to charge both would be great
• What is the fee based on? Is it a fixed fee or variable? - see above
• Fees are paid into the on-chain treasury? - yes. I suppose if this functionality is being implemented, could there be a feature that lets issuers charge an AUM fee in DAI as well? Perhaps this is for another release.
• Should we have an insurance pool or some supply set aside to cover pool losses? - great idea

[Harbor]

Agreed. Fees should somehow be tied to AUM as opposed to transactions… reason being, shorter dated tenors will always have granularity in the portfolio and higher transaction volume. I acknowledge that we are biased in this regard given asset tenors and liquidity in trade finance.

We 100% support the implementation of protocol fees.

[Stu]

Hi All,

My thoughts below:

1. If the circulation of CFG continues to increase then it will continue to be debased.
2. Asset Originators (of which we are one) should be paying CFG fees now for minting NFTs
3. Those fees should have a minimum and then be related to consideration / monetary value of drawn down funds on each NFT as this will volume weight the costs fairly vs the utility derived
4. The fees should not be sent to the on-chain treasury but instead be sent to a warehouse which is then burnt on a regular basis.
5. Fees in aggregate should be larger than issuance, constricting the supply of CFG
6. Only the issuer need pay fees, as funders will be paying indirectly as the spread between issuer income and issuer rewards to funders will widen to cover the cost of transactions.
7. $80M TVL is tiny in the world of finance. Many of the A/O’s can deploy multiples of that amount of capital on their own (eg Amazon seller financing for just the top 20% of sellers is many billions of dollars) so fees will be able to drop over time.

[ImdioR]

Good evening prankstr25!
Thank you for you full and detailed answer.

@ImdioR

What currency of the fee we should implement in your opinion? - CFG

Hm… If the fees should be paid in CFG this is mean that you can not predict the value of the token in near future for 6-9 months and as a result, you can not plan your future developing, hiring, partnerships and etc.

I’m not sure if still possible to pay the fees in the on-chain treasury in Polkadot in DAI,USDC, USDT (maybe Devs could provide some information).

Anyway, thank you again for your input.

@Harbor

We 100% support the implementation of protocol fees.

Good evening Harbor !
Thank you for your feedback!

Hello Stu!
First of all, thank you for your feedback and for providing answers for all questions!

@Stu

• If the circulation of CFG continues to increase then it will continue to be debased.

So would be better to pay fees in DAI, USDC, USDT or?

@Stu

• Fees in aggregate should be larger than issuance, constricting the supply of CFG

Any indicative value could you provide, please?

[ImdioR]

Good day @Will_Coleman
We would like to hear your opinion about Centrifuge Protocol Fees!
Please provide your feedback, thoughts, or concerns that you might have
Thank you in advance.

[lakejynch]

@ImdioR

• What currency of the fee we should implement in your opinion?

The goal of the fees should be to produce value while maintaining Centrifuge as a competitive option against TradFi alternatives. For this reason, I’d lean towards protocol fees being charged in a stable as the user experience will be simpler. This would shift the burden of acquiring CFG from the issuers to the DAO, which should be trivial for the DAO and could be challenging overhead for the issuer.

With the fees, the DAO can then choose to purchase (buy-back) CFG, or to fund operations, without the concern of having to sell CFG - selling governance tokens is something I’ve found to be extremely challenging for most DAOs.

@ImdioR

• What is the fee based on? Is it a fixed fee or variable?

As far as I understand, from an economic standpoint, the “cost of servicing” would be a fixed cost. Regardless of the size of the pool, the costs are fairly similar. However, strictly using a fixed cost could reduce the upside for the DAO. I’d opt for a max(x,y) solution whereby x is the cost of servicing a pool with an additional margin, and y is some function with a variable rate based on the size of the pool or the credit utilized.

@ImdioR

• Who is the fee charged to (Issuer, Investor or both)?

Softly held opinions here, but I believe the issuer would be in the best position to shoulder this cost.

@ImdioR

• Should we have an insurance pool or some supply set aside to cover pool losses?

No downside in setting this up and setting it at 0% to start.

[ImdioR]

Good day lakejynch
Welcome to our forum!

@lakejynch

The goal of the fees should be to produce value while maintaining Centrifuge as a competitive option against TradFi alternatives. For this reason, I’d lean towards protocol fees being charged in a stable as the user experience will be simpler. This would shift the burden of acquiring CFG from the issuers to the DAO, which should be trivial for the DAO and could be challenging overhead for the issuer.

Thank you for your elaborate feedback!

[lakejynch]

I appreciate the welcome.

Some background - I am part of the L1 Digital investment team and led our recent investment in the protocol. We’re excited to be joining the community and hope that our input here is helpful and constructive.

[ImdioR]

@lakejynch

Some background - I am part of the L1 Digital investment team and led our recent investment in the protocol. We’re excited to be joining the community and hope that our input here is helpful and constructive.

We are happy to see investors who are directly involved in governance and who could provide important and relevant feedback.

At this moment we also collecting feedback about Founding Documents:

• Part 1&2 - Founding Documents for the Centrifuge DAO? Part 1 & 2 - #2 by devin
• Part 3&4 - Founding Documents for the Centrifuge DAO? Part 3 & 4: Code of Conduct & Levels of Engagement
  Would be great to get feedback from L1 Team too! If you don`t mind

[Will_Coleman]

Hello @ImdioR,

Thanks for the mention! Let me do some research and thinking and I will follow up with my thoughts on the protocol fees

Are there any other resources outside of this thread you would recommend I look through to make sure I am fully understanding the fee discussion up to this point?

I will aim to give you my in depth thoughts by Monday or Tuesday next week!

[ImdioR]

@Will_Coleman

Are there any other resources outside of this thread you would recommend I look through to make sure I am fully understanding the fee discussion up to this point?

Good day Will_Coleman and thank you for your comment and for your time.

You can find some more info here:

RFC: Additional CFG Token Utility

Proposals for additional functionality for the Centrifuge Token (CFG) to improve the protocol The Centrifuge Parachain is live! So, what’s next? If you haven’t had a read yet - check out Lucas’s post on our Real World DeFi Roadmap. He touches on a crucial element of the parachain launch, and with it, the migration of asset financing pools from Tinlake on Ethereum to the Centrifuge parachain: CFG utility. CFG utility should empower holders to participate in the protocol long-term and actively s…

and something more here:

RFC: Increase Transaction Fees on Centrifuge Chain by 100x and Use the Fees towards a Token Burn

Hey everyone! I would like to propose an increase in transaction fees on the Centrifuge parachain. The aim of this proposal is to burn the excess CFG in the transaction fee, to help reduce circulating supply and positively effect CFG token economics. At current network use, transaction fees for a single CFG transfer on Centrifuge Chain is about 0.000052 CFG, which at current price is $0.000028 per transfer. Other transactions on Centrifuge such as voting, creating proposals, and more complex ex…

This is the reason why we, GCG, decided to reopen a post with 1 topic to discuss, otherwise, commenting on two different proposals could dissipate focus and attention.

[Will_Coleman]

Thank you! I will review these over the weekend and send my thoughts next week.

[Will_Coleman]

@ImdioR

What currency of the fee we should implement in your opinion?

I would agree that it makes the most sense to charge this fee in a stable coin, most likely Dai since that is the stable coin used currently by the protocol. It sounds like that may cause some complexity with the treasury however in my opinion having a relatively predictable income in Dai and having a strong Dai reserve will put the protocol in a better position of longevity.

@ImdioR

Structure of the initial fee implementation? Any ideas, or suggestions?

As I am still new to the ecosystem I’m not sure I have much insight here, apologies.

@ImdioR

Who is the fee charged to (Issuer, Investor or both)?

I would vote to only charge the Issuers and not charge the investor. In my experience from raising capital investors really don’t like fees charged to them in order to invest. For our current TradFi Debt Fund we don’t charge any fees to our investors. While most funds do charge a 1% management fee they still pay a preferred return based on 100% of their investment so as long as the fund hits it’s returns it is almost as if a fee was never charged.

With this being said the only reason for Issuers to join the protocol is going to be one of two reasons 1. Access to more capital or 2. Lowering the cost of capital. For us (we are wanting to be an issuer) we have plenty of access to capital in TradFi, so we are interested in Centrifuge in order to lower our cost of capital. I think the protocol fees should be charged only to the issuer but the fees should be low enough so that the protocol can still provide a lower cost of capital than TradFi.

@ImdioR

What is the fee based on? Is it a fixed fee or variable?

I would say a fixed % of funds borrowed from the pool. So maybe .25% - .50% of funds borrowed from the pool. Also, me as an issuer, I would rather pay these fees when the loan is paid back to the pool rather than when the funds are borrowed from the pool. I’m not sure if that’s an option or not.

@ImdioR

Fees are paid into the on-chain treasury?

Yes I think this is a great idea.

@ImdioR

Should we have an insurance pool or some supply set aside to cover pool losses?

Yes I also think this is a great idea.

I hope this is a helpful contribution! @ImdioR

[ImdioR]

@Will_Coleman

I hope this is a helpful contribution! @ImdioR

Good day, Will_Coleman!
You can not even imagine how your feedback is important and helpful!
Thank you.

[scytale]

• What currency of the fee we should implement in your opinion? - CFG
• Structure of the initial fee implementation? Any ideas, or suggestions? - up-front fee covered 100% by the issuer
• Who is the fee charged to (Issuer, Investor or both)? - 100% covered by the issuer
• What is the fee based on? Is it a fixed fee or variable? - variable, a % of the transaction
• Fees are paid into the on-chain treasury? - it makes sense for the fees to be paid to the on-chain treasury and be burned
• Should we have an insurance pool or some supply set aside to cover pool losses? - an insurance pool based on the risk would made sense. It should be paid by the issuer

[ImdioR]

Good day scytale and welcome to the forum!
Thank you for providing your feedback.

[ImdioR]

Good day @BlockTower and welcome to the Centrifuge Forum!
I`m very excited about your POP process!
We will be very grateful if you could provide your expert feedback about Centrifuge Protocol Fees and the questions asked in the first message.