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 extrinsics can range from ~0.00004 to 0.0001 CFG.

Proposal: Increase Centrifuge Chain transaction fees by 100x and burn excess fees:

  • According to current network use, this change would result in a fee of ~0.0052 CFG for a single transfer or $0.0028 at current token price
  • Other common transactions would range from ~0.004 to 0.01 CFG
  • The increase in transaction fees would still result in a fee that is quite small while also contributing to the health of the CFG token
  • If CFG price increases to the point where fees become significant, an additional proposal can be introduced to revert back to reduced fees
  • The new fees on Centrifuge Chain would still be similar to other parachains

I would like to request your comments regarding such an increase in fees and discuss the technical feasibility of implementing this proposal :slight_smile:

10 Likes

Good evening Ash.

  1. This is an amazing proposal in my opinion. Recently I have compared transaction fees in Polkadot network and found that the Centrifuge fee (Fees of 52.0188 micro CFG =0,0000520188 CFG) is one of the lowest in all networks.

Acala - Fees of 2.4631 milli ACA
Astar(Shiden) - Fees of 1.6060 milli ASTR
Clover - Fees of 1.4915 milli CLV
Moonbeam - Fees of 123.0000 milli GLMR
Parallel Finance - Fees of 2.4658 milli PARA
Uniq - Fees of 114.2111 milli UNQ

So I highly agree with increasing of the fee for 100x - 5.20188 milli CFG :heart_eyes:

  1. Burning the excess fee will healthy benefit Centrifuge tokenomics . :ok_hand:
5 Likes

I also think we should increase the fees because it will also contribute to the better security of the network as it won’t be that cheap to spam with a lot of transactions simultaneously.

3 Likes

I think it was an offer that should have happened earlier. I support.

2 Likes

I support this. @Yarosl6’s comment re: makes it less cheap to spam network resonates with me as well.

1 Like

I am in favour of this proposal and just like @ImdioR, I also looked up the transaction fees on other Polkadot parachains and even after a 100X increase, the transaction fees on Centrifuge will still be in the low range among the parachains (in $ value with current market prices).

Just like all other changes, we just have to keep an eye on how this affects the fee prices. Unless there is something I have missed, I believe this change will be healthy for the tokenomics in the long run.

2 Likes

Thanks for introducing the topic to the community and Thanks to @ImdioR for the details of other parachains on Polkadot.
As stated in the protocol roadmap the utility of the CFG-token is one of the themes and right now - after staking ended - the token issuance reduced drastically.

It would be the perfect time to “increase the utility” by burning more tokens, especially when TVL in the expected Tinlake pools on Centrifuge chain is moderate.

But I have two comments: as you said in your proposal, the time frame as well. The fee has to be monitored because of token price increase and other factors and a tracking of the token burn is important too.
I would like to see a token burn page to visualize the amount of burned tokens similar to the one from Maker

https://makerburn.com/#/

Once it’s time I can propose such a tool :wink:

4 Likes

Thanks for introducing this RFC @Ash! Although I strongly agree that as a community we should aim to increase the utility of the CFG token, I don’t believe that we should be setting transaction fees based on the utility it can provide.

The main goal of transaction fees is security: charging blockchain users a cost that prevents spamming the chain (i.e. prevents Denial of Service attacks). Builders of Substrate-based blockchains use benchmarking for this. With this method, the aim is to calculate transaction weights that represent the computation and storage cost as accurately as possible. These weights are then converted into the actual fee (in the native token of the chain) using a predefined conversion in the runtime. Now, my hunch is, it’s this conversion that likely differs from other parachains and this is why the fees (e.g. for transferring native tokens) are significantly lower.

I haven’t looked into this too closely yet, and I think we definitely should find some time to look into this. But we should define this conversion based on what is economically sufficient to prevent spam, not based on how much utility the fees would provide. The reason for this is: we should think about what kind of costs actors in our ecosystem should want to incur. Going through the recent utility proposal, I think #1 Protocol Fees is particularly interesting.

As an example: say the Centrifuge Protocol grows significantly in the next years, blocks start to be filled, and fees go up significantly due to increased demand, as well as due to the 100x increase in conversion that this proposal would lead to. This would mean that any interaction with a pool has a high cost, which in turn leads to an incentive to reduce the number of interactions. One effect this can have is that issuers are incentivized to bundle assets and create larger assets within a pool, leading to a lack of transparency on-chain about the portfolio of a pool. It could also disproportionately impact SMEs using the protocol, as the start-up costs of launching a pool would be higher.

Now, it’s worth saying that this is certainly a hypothetical scenario: currently transaction fees are still low that even a 100x increase would not have this effect. But I think the principle does already apply. If instead of increasing transaction fees, we focus on increasing usage of the blockchain (by growing the Centrifuge ecosystem) and introducing Protocol Fees, this would lead to the issuers paying a fee relative to the value of the pool.

To summarize, I think if we want to grow utility of the CFG token, we should:

  • aim to grow the usage of the blockchain first (i.e. launch Pools on Centrifuge Chain and make this a success);
  • enable protocol fees that scale based on the value of a pool;
  • and set transaction fees such that they discourage spam, but encourage valuable interactions with the blockchain.

I do agree that we should take a closer look at the conversion, whether this is set up correctly relative to other parachains, and I can find some time for this in the next few weeks and share my findings back in the forum.

2 Likes

I am kind of leaning towards @jeroen’s thinking as well, but I am definitely not an expert on this topic, so I was wondering if there are any examples of (perhaps Ethereum?) of other projects that collect hire gas fees and then use them to burn?

Completely support - do we need to vote for this on-chain?

I agree, we need fees high enough to prevent any security threats we might face, so if you’ll have precise information on how much should it be - it would be awesome. Though in comparison to other parachains our fees are still much lower.

Also even considering potential growth 100x increase will at most make fees est. equal to 0.05$ per transaction which still will be low and won’t prevent anyone from making valuable interaction with the blockchain.

And one more thing is that if we see any complaints from people in the future we always have an option to reduce fees

Also I would like to mention Altair here. It’s 10x cheaper than Centrifuge and have 4x lower fees. From security perspective we might consider to increase fees on Altair as well

Hey thanks for the response Jeroen! :slight_smile: Yes the proposal’s intention is set transaction fees to add utility to the token, however not at the cost of interfering with Centrifuge’s growth. If at any point the fees become prohibitively high for any actors in our ecosystem then an additional proposal can be introduced to revert back to the original fees. I definitely agree we should not discourage issuers from interacting with Centrifuge chain, currently a 100x increase may not be significant enough to cause those limitations, but in the future that might not be the case. Perhaps there are immediate significant costs that certain actors may face from this proposal that I’m not aware of?

I believe the main advantages of this proposal is that it discourages spam but also that all ecosystem actors of Centrifuge chain can help contribute to CFG token utility, not just borrowers via protocol fees.

Theres an off chain poll posted here Poll: Increase Transaction Fees on Centrifuge Chain by 100x and Use the Fees towards a Token Burn

1 Like

Thanks, I have done it.

LFG! lfg lfg lfg lfg

Following on the next steps of this proposal. The team is working on the following:

  • Adding the Treasury pallet to the Centrifuge Runtime
  • Correct Split Rate: Out of the tx fee how much goes to the author and how much to the treasury?
  • Correct Treasury Burn Rate: Out of the amount that is accumulated in the treasury, how much of that we burn every session.

This parameters affect the token economics so we need to do some discussion on the correct ones to propose later.

We will provide more information around this in a timely manner.

3 Likes