Decreasing minting fees to 0.15%

[ep1110]

Name: Decreasing minting fee to 0.15%
Category: Protocol
Status: Proposed
Scope: Decrease minting fees to 0.15% and evaluate the elasticity of demand and the interaction between TVL, TVB, Price, Nodes operational.

Overview:
This RFC proposes decrease the minting fee for RenBTC to 0.15% at the end of the current epoch (7 days from now).

The new RIP may propose keeping the 0.15% and monitoring if it´s appropiate to continue to go back to 0.10%, the fundational percentage wich I believe is the most convenient for the network. I´m trying to demonstrate than Value Locked ( agreed not to been the main metric) involves interactions with revenues, Price, Ren market cap and safetiness of the network.
Plus, monitor how the increasing of fees affect new integrations with extra fees aggregated (e.g.MEW) and could damage what can give more velocity of transactions (0Conf).

Details
Since 19-10, “the total BTC locked has gone down as desired, and the revenue of RenVM increased slightly (despite the decline of DeFi yields).” The affirmation is true, but the increase in the revenue was due to the increasing burn revenues balanced with the marked decline of mints.

It was planned by the team to see the consequences, and clearly demonstrated than the elasticity of demand was high. Despite the noise of changing yield farming scenarios, it´s due to say: the demand reacted inversely correlated with the higher fees while Total wrapped BTC on ethereum belonged growing stronger after 19-10.

Data source: Defi Pulse/ BTC at work

Since 19-10-2020 RenBTC has lost 13.610 BTC locked, 50% of it´s previous market share and a 9.01% of the market while all others growing.

From REN network data, balance between mints and burns was:
-128.000.000 last month
-33.000.000 last week

If it was intended to generate an approach to the network security, I firmly believe than only when TVL is in billions will be generated the possibility to reach that goal. That is based on a model made where the ratio TBV*3/TVL is approximating and exceeding 1 only with bigger numbers in TVL (with mints) that generates a possitive feedback to Market Cap., Price, Darknodes added, Income, enhanced by the integrations that can provide more velocity of transactions (helped with the reduction of fees).

The following Excel chart shows a model with a fixed relatively high APY in terms to evaluate the other conditions.
-As experienced with many platforms the market cap tends to follow the Value Locked or Network effect, or at least should be a media of a function between both. TVL stronger than maket cap. (as usual) implies more volumen is needed to reach safetiness.
It begins for actual Price, nodes operational and TVL. Followed by the TVL increasing each 250 MM and the possitive feedback to Price, darknodes added, revenues, TVB. The more TVL, the more Price, Nodes, TVB.
Integrating applications that can give volumen (with lower fees) and velocity, makes much more easier to reach the 1 ratio to make secure the network.

Otherwise we run the risk of stayin in a plateau with this general numbers and not to grow from here. That implies never reach the standard for network security.

About the promissing new integrations that add extra fees, numbers as well at least show the need to test lower cost for the transactions. Have a look at My Ether Wallet 24hs.and total volume.

Some topics:
-At actual velocity of transactions, with the model exposed renVM begins to be safe somewhere around 2.5 B TVL.

-Based on experience in other platforms (crypto or not), altough could be relationed with fees, the market cap will unlikely be higher than Value Locked for a long time. That implies if you have a TVL of 400 MM we shoud never expect a MC higher than that. And probably wont reach the safety standar .

-TVL is not the main metric at all, but necesary to favour the factors that determinate security and profitability of the sistem. At actual velocity of transactions, with the model exposed, renVM begins to be safe somewhere around 2.5 B TVL.

-We are mostly burning the mintings before 19-10.: If btc goes down the rewards in usd will be much lower than today.

All burneable RenBTC must have been minted.

Objectives:

• Allow new integrations develop your potential,.and contribute to the higher velocity of transactions.

• Grow to stronger numbers by generating possitive feedback between TVL, TVB, Market Cap, Nodes operationals, in order to ensure the network security and higher revenues.

• Enhance the visibility of the platform, network effect, market share.

• Enable short term profit lab (like arbitrage bots), contributing to de velocity in the platform as well.

• To grant low fees (0.15, or 0.10% later) in order to give certainty to take planned decissions.

Conclussion:
Tecnology in general is developed to make everything easier, faster, more secure and cheaper.
In a context of lack of human intervention all tends to be lower in fees. I asume in the middle, long term, the fundational and economically elegant model of REN will be the rule.
Having tested the high elasticity and it´s effect to the network, I propose lowering the fees to 0.15% in a first step and monitor the consequenses.

Implementation
Nothing is needed to implement this change. RenVM governance (currently controlled by the Ren team as per Phases · renproject/ren Wiki · GitHub ) can set the minting fee with a call to the renBTC (and other) smart contracts.

[FanaticalFishing]

Thank you for taking time to make this proposal. I like it.

[Renchad]

Let’s RIP it I like the reasoning

[hellomoon54321]

I disagree with this. I think you’ve missed a few crucial points:

1. btc gets wrapped when there are interesting opportunities to use it, right now that’s limited to curve and its derivative projects (harvest, badger). Until we see more exciting usecases with higher yields, you’re not going to see much demand.
2. you’re right that there have been more burns which is because it currently costs 1% to mint/burn wBTC. So holders of xBTC who want to go back to btc are using ren. The argument that they can use cexs/dexs doesn’t hold when you look into the available liquidity, if you want to do more than 10-20 btc you get destroyed on spreads.

If by reducing the minting fees we’ll get more liquidity, where do you supposed that liquidity is going to come from? As in what’s the route that those users are currently taking to go from BTC to xBTC and what are the fees associated, that we will now be able to entice them back with lower fees? Because right now I don’t see those routes?

[ep1110]

We can discuss about curve, opportunities of yield farming, etc. but if that’s true tell me why mints don’t reacted heavily to that but yes inmediatly fees got higher (19-10). As You can see, after that date all the way down, while wbtc had it’s peak at en of november, more than a month later. A lot of people are writing “it was the same for all wrapped btc” and it wasn’t. In fact the test was thought to monitor the elasticity.
Whit this levels of TVL is pretty difficult to reach velocity. Plus high fees are hurting new integrations. Plus arbitrage has gone.

[Dgtodamoon]

i agree on this one.

[Rentard]

Strongly in favour of this RIP.

I believe that we can only reach the 3:1 ratio of TVB:TVL by reaching a critical mass of liquidity that all the protocols want to adopt renbtc. We have seen very little interest in the defi market for utilising renbtc of late, whereas almost all new defi protocols adopt wBtc as a matter of course. This is down to its TVL and liquidity, and is something that we need to compete with.

The only way I see us getting there is by reducing our minting fees in the short term to allow us to grow beyond the critical mass required to ensure inclusion in the majority of defi protocols.

[Twinkieboy]

I strongly disagree with this rip, we have had steady growth ( each new epoc has seen growth) given how much new money is coming into the space, we need to seize these types of market environments with forward price movement ( not only for tdvl but for dnode earnings as well) there is something to be said about being to conservative and missing out on what will probably be the biggest bull cycle in history of crypto

[ep1110]

The growth of earnings is in USD due to the BTC rally from 11.000 to 38.000. I’m not saiyng this is Bad, but it’s perhaps the best time to test how new integrations, volume, TVL, TVB reacts to the lower fees. We Lost market share from 18 to 9%, that means users. Probably in a brand new system we have to combine Metcalf law with traditional P/E in finance, plus monitoring the network security. I think a positive confluence between those factors Will begin with much more mints and TVL. We can’t go faster in velocity with a 300 mm TVL. Neither if new integrations have high costs in transactions.

[Joel]

I was thinking the same thing that demand is really what’s driving this market and the October mint fee raise coincided with shrinking high yield opportunities for RenBTC contaminated the data and makes people think the higher mint fee was highly effective. I’m not opposed to decreasing minting fees to experiment but I do believe the case is weak. The assumption that a whale is going to look at the 0.1% reduction in mint fee and decide to mint more RenBTC based on that is not very convincing.

[ep1110]

I´m missing the high yield opportunitie that cutted off for renbtc on 20-10 and allowed wbtc to keep growing before that date to end of november.
Agreed, the demand is what´s driving this market, majority of markets. And Arbitrage, new integrations, new direct mints are determined by the demand. High elasticity of the demand implies the more the cost to mint the less the mints, the less the arbitrage, the less in new integrations use, the less in liquidity, the less in velocity.

I´m trying to test if the case is weak, as you said. Don´t think so but I would be the first in recognice the mistake and go towards the best profitable fee.

[preston]

1.7.2020 - 3 days remaining in Epoch 10
6, 212 BTC MINT VOLUME - CURRENT EPOCH
4,190 BTC MINT VOLUME - PRIOR EPOCH
2,022 (48%) GROWTH IN BTC MINT VOLUME

If MINT Fee was not raised .05% - the additional volume required to match Dark Node income is
1,553.24 BTC or $59,000,000 USD. This volume amount of 1,553.24 BTC is 3.3X as much volume as the arbitrage wallet has produced in its entire existence.

For the last two epochs, Dark Node operators navigated the market correctly by increasing MINT fees, allowing new dark node operators to experience steady income growth while maintaining a healthy dark node growth rate per epoch.

RenVM is still in the very early days, showing consistent growth in income builds faith and stabilizes the value of REN tokens. This value will price where the market feels DarkNode ROI is enticing. The more steady growth we can demonstrate, as opposed to large swings in income, the more future operators will want to join the network.

I predict we continue to see increases in volume over the next epoch, if we raise fees to 0.3%, we will capture this value and continue to price discover market Mint Rates

[Rentard]

While its all well and good to say, look we’ve marginally increased revenue over the last few epochs by increasing fees - we simply do not know whether we would have seen volume and integrations increase at a much faster rate had the minting fees remained lower.

All we do know is that TVL and volume were at their highest with our minting fees at their lowest. When the fees were raised that growth has stopped. So while I am very confident that reducing fees will increase volume, TVL and from then on, integrations, I simply can’t tell by how much because those who are looking for a quick buck refuse to experiment at anything other than maximum fees.

I think Ren should combine a fee reduction with a mini promotion campaign, saying for a short period minting fees have been reduced to 0.15%. That way we get to see the impact on returns, but always with the intention that fees will be raised again at a later date. I’m not in favour of keeping fees low for ever. Just until we reach a critical mass of TVL, volume and integrations.

[ep1110]

“Navigated the market correctly by increasing mint fees”? Sounds like a very bear market and BTC went from 11.000 to 38.000.

The income of darknodes could have been very different if btc remained at an average of 15.000 e.g.

It’s imposible to assure now, but i’m possitive the revenues could have been higher if the fee were 0.10 and the liquidity kept growing.

[ep1110]

My point:

-no better time to retest to lower fees and see how the demand reacts.

-TVL is key not as a main metric but a sine qua non condition to start spreading the factors that matter in a possitive feedback way. As i’m trying to demostrate, the more the growth in TVL, the less influence to damage the network security.

[FanaticalFishing]

@preston

I predict we continue to see increases in volume over the next epoch, if we raise fees to 0.3%, we will capture this value and continue to price discover market Mint Rates

No thanks…

[preston]

@Rentard

While its all well and good to say, look we’ve marginally increased revenue over the last few epochs by increasing fees - we simply do not know whether we would have seen volume and integrations increase at a much faster rate had the minting fees remained lower.

Integrations are controlled by the development schedule of the team, and the community influence on governance on other protocols, not our fees.

@Rentard

All we do know is that TVL and volume were at their highest with our minting fees at their lowest. When the fees were raised that growth has stopped. So while I am very confident that reducing fees will increase volume, TVL and from then on, integrations, I simply can’t tell by how much because those who are looking for a quick buck refuse to experiment at anything other than maximum fees.

TVL is not a metric we are trying to maximize, please read up on how security currently works. Further, do you think that lower our income will increase our TVB? look at how much more MINTS we would need to even match income? Where do you think that volume will come from? Our fee increases as a fact have had a positive impact on our income, what drives our volume is DEFI incentives. There was a 2 epoch slump in DEFI, but with the BTC rally, DEFI is back in charge, and we will continue to see growth, whether we hold the fees flat, or increase them. Sit back and watch

@Rentard

I think Ren should combine a fee reduction with a mini promotion campaign, saying for a short period minting fees have been reduced to 0.15%. That way we get to see the impact on returns, but always with the intention that fees will be raised again at a later date. I’m not in favour of keeping fees low for ever. Just until we reach a critical mass of TVL, volume and integrations.

The team is focused on integrations and connecting RenVM to more chains so we have more volume, as the community we will be responsible for steering the ship. Our goals should be aligned in protecting the network, by incentivizing more nodes, maximizing node revenue, which will drive up our TVB, this is achieved with a consistent track record of income growth,

[preston]

@ep1110

“Navigated the market correctly by increasing mint fees”? Sounds like a very bear market and BTC went from 11.000 to 38.000.

Not bearish at all, the comment is praise as the REN community did the exact correct thing, if you look at the data all of DEFI slumped as DEFI incentives were less attractive in epoch 8 and 9.

@ep1110

The income of darknodes could have been very different if btc remained at an average of 15.000 e.g.

What you can calculate based on the actual volume through the network, and not hypothetical volumes we did not process is that our income with a lower rate to it would be lower.

[ep1110]

Agree, but nothing of that will happen if the liquidity remains around 400MM and you don’t incentivize new integrations with lower fees. Repeat: the more liquidity, the more velocity, the more network security. It’s a quimera to wish a stronger TVB, node operators, price, etc without growing liquidity.

[FanaticalFishing]

@preston

What you can calculate based on the actual volume through the network, and not hypothetical volumes we did not process is that our income with a lower rate to it would be lower.

Your high fees caused the volume, id est revenue to be severely reduced. It had been doubling each month. this subsequently caused the vaule of REN to tank.