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.
As I am still new to the ecosystem I’m not sure I have much insight here, apologies.
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.
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.
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.
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.
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.
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”
Fee currency: CFG! (can implemey tools to convert in transaction for great UI. But payment done in CFG).
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.
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
Insurance pool? Definitely!!!
Would try also incubation trust: on boarding protocols…
Many thanks to elaborate the RFC. Following my thoughts before voting closes
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.
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.
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.
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.
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.