Good day Community
We, Governance and Coordination Group, would like to ask Centrifuge Community and CFG token holders for feedback regarding this proposal. Any feedback, comment, or suggestions from the Community are highly appreciated.
Proposal type: CP-4
Authors: Governance and Coordination Group (ImdioR, Rhano)
Technical/non-technical proposal: Technical
Date proposed: 2023-01-19
- Implement protocol fees on Pools Centrifuge Chain
- This proposal, if passed, will add protocol fees on Centrifuge Chain in order to ensure self-sustainability of the protocol
Over the past three years, Centrifuge has been able to achieve significant goals, not only in terms of development, integration, and partnerships but also financially in DeFi. Until now Centrifuge didn’t accrue any fee from Issuers or Investors for using the Tinlake application.
That is why the development and implementation of protocol fees is an expected and considered step that will ensure the independence and protection of the protocol from external economic shocks, ensuring stable, regular, and predictable development.
The only way to be able to run a successful Protocol is the availability to fund future development and innovation of the protocol. Even a small protocol fee would provide significant funding to help cover general protocol expenses.
There have been several discussions among community members regarding introducing protocol fees in the past. Based on the feedback received on this topic, the Governance and Coordination group would like to propose the following proposal to the Community.
Detailed description of proposal
The main objective of protocol fees is to provide an economic incentive and to help ensure that the protocol can function smoothly and efficiently during any external economic situation.
In the initial phase, fees will simply be accrued into the on-chain treasury. There are many possibilities and opportunities to pursue once fees accumulate.
The funds in the treasury will typically be used to finance the development and maintenance of the protocol, and expansion as well as to support other activities that are deemed to be in the best interests of the protocol and its users.
Given the volatility of native token currencies in general, we would like to propose the protocol fee currency be in a stablecoin (the currency of the Pool on Cent Chain) in order to avoid developing complex solutions for cross-exchange.
The fee is defined as a % of all outstanding loans in the pool. It is set on each pool during deployment and can only be changed by governance. The proposed initial fee is 0.4% per year.
The protocol fees are accrued every second on each loan and paid by the Issuer on any borrowing or repayment transaction into an on-chain treasury, which is a special account controlled by governance(i.e. the token holders).
The formula for calculation of the Protocol Fees, based on the outstanding loans:
where L = Loan in Pool Currency, i = protocol fee value in decimal, t = Time → Loan duration in years = [Days/365] , n = seconds per year.
Example: L= 10, 000,000 Pool Currency, i = 0.004, Repayment in 120 days → t= [120:365] = 0,3287671232876712, n=31,536,00
Change or improvement
- Extend the pools pallet to start collecting protocol fees as described above.
- Activate Protocol Fees on Centrifuge Chain and set a fee of 0.4% of all outstanding loans in the pool.
Alignment to the mission of Centrifuge DAO
We believe that the implementation of Protocol Fees is one of the most important functions for the future of the Protocol.
The fees paid in stable tokens will ensure the ongoing development and maintenance of the protocol and will guarantee future development and innovation of the Protocol, as well as support other activities that are deemed to be in the best interest of the protocol and token holders.
The RFC will be open for a minimum of 7 days.
Looking forward to any feedback and any concerns that you might have with this proposal.
If there is support for this proposal, the next steps will be to submit it to the Proposal Repository on Github and create an Opensquare snapshot vote. There will be a separate post here on the Forum once that’s done.
If the Opensquare snapshot vote passes, this proposal will either be submitted as a motion by the Council or it will be part of the next Runtime Upgrade.
If you have any questions or comments, please feel free to reply to this post.