Centrifuge Protocol Fees

Centrifuge Governance Governance discussion
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  • 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
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24

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

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Good day @BlockTower and welcome to the Centrifuge Forum! :hugs:
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.

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Paying the service fees in stable coins makes sense since the assets issued, interest received and paid are denominated in fiat. Taking some portion, if not all, of said types of revenues and using them to buy and burn CFG would be ideal. Then, we would have a very clear protocol revenue, an immutable record of how much of it will be used to buy-and-burn tokens from circulation. This will help ensure the alignment of incentives where users have a clear sense of being stakeholders in the DAO.

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Good day SYZ
Thank you for your feedback! Very interesting point about splitting the protocol fee in native token and stable!

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I like ImdioR replies except that CFG and DAI could be used for fees to facilitate dev input with a stable return to dev. It’s a good idea to have some percentage of the fees go to token holders paid in CFG.

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I like the idea of giving cfg more utility! I don’t think it should be a reward token unless you want tremendous sell pressure. Consider, a loan that has been taken out and based on the value the user has accumulated a large amount of CFG tokens. The user runs into some financial problems and can’t afford the loan repayment, but they do have a large amount of CFG they can dump for cash. More than likely they will do it to generate income to repay the loan. Now imagine 5-10 users having this problem in a short period of time. There could be a considerable drop in price for CFG disincentivizing other investors and punishing current holders.

What I think would work is using CFG to capture the protocol value, the fee structure could be designed so that the protocol fees are collected and distributed with certain percentages going to different vaults mainly one to the team managing the development and maintenance of the protocol and one for CFG holders. The CFG token could then be redeemable for a certain amount of vault value. This would give CFG underlying value and I think it would be less likely to see severe price dumps. Instead we would probably see more and more of it being used to redeem the underlying value from the designated vault. The redeemed CFG could be burned or taken out of circulation to further increase the value of the CFG token. This strategy may prove to be a hinderance to other functions of the chain. But it may be resolved by allowing a selection of other tokens to pay the gas fee similar to how Karura does, where any token can be used for gas fees but transactions are cheaper using CFG. I’m sure there are some kinks to work out with this idea but the general concept is that CFG accumulates if value from fees charged when opening a loan, servicing it, and transferring it (I guess proportional to the loan size). I don’t think there should be a fee to close a loan. This strategy would reward all holders and may open the door to self-repaying loans which I’m sure the borrowers would be interested in. The tokens should probably be burned rather than being taken out of circulation if there is no max supply. Transactions can cost a fraction of a CFG if the price and supply dictate it. If we can give CFG tangible value other than gas fees the borrowers are more likely to give the token value and not dump it. This underlying value would also open up CFG to more defi opportunities in essence making CFG a money lego. Thus collecting fees in stablecoins is critical to the aforementioned strategy.

Acquiring external insurance should be done in addition to any internal protection measures. This would diversify the risk and possibly create a plan A and plan B should an unforeseen situation arise. I hope this help guide the community to the right decision. I can’t be here everyday without getting paid and I’m sure that many others are in the same boat. Therefore I do agree with a delegation of CFG or at least the attached voting power to a group of qualified “loan auditors” however they need to be held accountable for their actions and need to be regularly vetted to ensure there are no conflicts of interest while performing their duties. For example voting to accept certain loans because of receiving bribes or having personal/business connections to the borrower.

Please don’t over burden CFG holders with too much maintenance for their investment. Also the voting power should remain in control of the CFG holder, so that if there is a decision made they don’t agree with they can vote differently and the vote will immediately count, so no cool down time period for CFG holders overruling the vote done by their selected “loan auditor”

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Hi benruggedafewtimes. Thanks for your comment, feel free to add your contribution to the RFC protocol fees where all input will be considered for the final proposal :raised_hands:

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The fee threshold idea that Kevin Chan (@BlockTower) mentions here is a very good one.

There is little value in collecting fees from pools looking to gain traction and once they have traction, fees shouldn’t impact them. Should be fairly easy for issuers to incorporate into their model.

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Hey friends, just putting my preferences:

  1. Fee currency: CFG! (can implemey tools to convert in transaction for great UI. But payment done in CFG).
  2. Stracture of fee: If protocol has max supply, for me burning is less important. We will see growth linear to the revenue growth of the protocol (and price of CFG, if we see APY that reflects decent profit sharing). Burning is important when high emissions and no max supply.
  3. Who is the fee charged to: every transaction all sides. But I can definitely see difference is the fee hight.
    No matter what, fee needs to be very low (even if price will 100x from here). It’s a must for protocol health and success to all of us :slight_smile:
  4. Insurance pool? Definitely!!!
  5. Would try also incubation trust: on boarding protocols…
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It is really a question to define “small”. 13k on 10m volume is totally fine. Could we define threshold in a clear number to understand “small”?

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Many thanks to elaborate the RFC. Following my thoughts before voting closes :wink:

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

  • Structure of the initial fee implementation? Any ideas, or suggestions? Threshold is fine as suggested before but on the other side we have Altair for these type of projects where we could wave fees. So, I would opt for all have to pay when they come onto CFG market place.

  • Who is the fee charged to (Issuer, Investor or both)? If 0.4% is doable it should reflect enough income to cover both, Issuer and Investor, if not we have to to go for both sides. Issue gets management fee and performance fee, as a marketplace, we give service to Issuer and Investor. I would go for both sides if 0.4% is the lower end of fee income.

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

  • Fees are paid into the on-chain treasury? On-Chain and share between Team and Holders.

  • Should we have an insurance pool or some supply set aside to cover pool losses? Issuer is insured for defaults. I am not sure which type of insurance you contemplate. Protocol failures? if the latter, of course.

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Thank you PathrockNetwork for you feedback!

Talked by my self, as a community member, i checked other fees in the RWA area +TradFi and found, that 0.4% is the smallest fee that exists right now.

You can find some more information here:

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image905×733 99.3 KB

P.S. Thank you again for your participating in the off-chain discussion. Would be great to receive your feedback before the Protocol Fees go to the OpenSquare Snapshot vote ( This is not a complaint :grinning: )

The RFC topic you can find here:

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That’s awesome data. Many thanks for this!
Now studying the table and knowing that we do not charge investors(?) we could easily raise fees in future. But .4 is already a good start to attract new pools. With the time of bd more with increased features this can be adapted.

Regarding “small” I rather meant the volume based approach when to start charging fees. That was one comment I read and I think any project should pay the fee regardless the volume.

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If you would like to know more about the fees you should dig deeper. You will find additional fees like: Late Fee and etc…
In our RFC the amount of fee proposed is the lowest one. And i completely agree that any protocol to be successful and self-sustainable should introduce the protocol fees.

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The value proposition is the low fees. Fees should be a function of costs and some margin. Given that our margin is lower than TradFi, since much of the process is protocolized, we can implement a margin that would be attractive to CFG holders, but still be extremely competitive for competitors. Our goal should be to make this a ‘no-brainer’ for creditors to onboard, but of course nothing is free.

Would be interested to hear your thoughts on the viable fee range @BlockTower and if you could provide any CeFi data to add to @ImdioR’s analysis.

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  1. Fees paid in CFG. CFG may be too illiquid however. So 50% CFG (% to be burned) and 50% stablecoin?
  2. Structure
    a) 1/2% upfront structuring and set up fee
    b) 1/2% annual ongoing platform fee (paid monthly)
    c) X% Trading or transfer fee for investor trading or transferring of ownership.
  1. Upfront fee paid by asset manager, ongoing monthly platform fee paid out of interest payments made by investors, transfer/trading fee paid by investors
  2. Fees based on AUM and asset values.
  3. Minimum 50% of fees burned. The rest for ongoing development and maintenace of the platform. Raise % fees to make sure it supports both development and value of CFG.
  4. No insurance pool. The point of investors getting interest above and beyond the risk free rate is to pay them for the risk of loss.
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Thanks for the link out @ImdioR! The full piece below was inspired by the dialogue happening here on fees and I think is useful context for the Centrifuge community on a more detailed view of fees across the space.

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Hello Ryan
Thank you for this article. I think that this is the best article read so far about protocol fees. Wallfacer Labs reviewed RWA fees (withdrawal, Protocol fees, Performance fee) and incorporate everything in one article!
Really great work! Thank you for sharing!

By the way, GoldFinch also introduced a Late fee. Without talking about numbers and the structure of this fee, in my opinion, i think that once the Protocol will be big enough (TVL +1.5B? =) ) the Late Fee can stimulate fast repayment.

What do you think?
However introducing this fee in our days, during the bear market, will be a little bit premature. IMHO.

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42

Transactional model like gas fee? Staking? Gov token provided along side rewards in tinlake? LP’s? Variable reward rate based off the generation of said fees to keep treasury bank allocation for more important stuff such as innovation grants? I find that for protocol tokens the more tangible the token utility the price action is also much more positive over a more sustained amount of time compared to others. To make the CFG token able to meet larger utility and liquidity demands ect. Would an additional platform to bootstrap with tinlake be possible??? Not trying to plug just making a connection, but i feel something like a more basic lending and borrowing like [Radiant Capital $RDNT] on ARB could really bring in more regular users, and help them also at the same time as they would be able to essentially educate themselves financially through use from basic to more advanced. And would solidify the CFG utility incentives as mentioned above. With regulation around the corner i would also suggest to have all of token standards in place before hand then after.

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