RFC-000-0015 – Raise the burn Fee to 0.2%

Name: Raise the Burn Fee to 0.2%
Category: Protocol
Status: Proposed
Scope: Increase the burn fee to 0.2% and monitor impact.

Overview

RenVM is starting 2021 off with a lot of activity, Ren has seen a new ATH price, the TVL has expanded greatly in RenVM due to the increase in value of BTC, the total BTC locked has gone down from the all time high but is rising again, and the revenue of RenVM is increasing from the rise in BTC price, and the past approved RIPs to increase the fees.

It was the 6th Epoch of 2020 when RFC-000-007: Increase burning fee to 0.2% on November 16th was first proposed. As more volume data has been collected what we see is that a lower BURN fee rate doesn’t seem to have a material impact on volume. There might be certain integration or arbitrage opportunities that at higher fee prices don’t pencil out, but largely the dominant amount of volume comes from Ren Bridge and Curve.

However, if we had raised the BURN Fees we likely would have seen a meaningful increase in Dark Node income equal to 29.73% of the total income earned and would have increased Dark Node Operating income by 0.032141 BTC. With more security comes additional network expenses, and to inspire additional network participation, we need motivating income for people to join the network and lock up their tokens.

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If we had raised the BURN fee, we may have lost the arbitrage bot, but look at how much income we would have gained through our existing integrators and REN bridge. As opposed to the income from the singular arbitrage bot. Below you can see the total impact to our network from this arbitrage bot in income per node.

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Details

The long-term goal is still to implement algorithmic self-adjusting fees that do not require active governance by nodes/community members. But, before we can design such an algorithm with any kind of confidence, we need data about how volume reacts to different minting and burning fees.

The team is actively working to improve the security of the network specifically to address TVL / TVB, this effort will create a lot of value for RenVM, allowing us to focus on our market penetration and expanding TVL, and opening up additional income opportunities. So far, we have seen 11 Epochs of volume with 0.1% BURN fees, and so far we have seen volatile amounts of volume that seem to correlate the most with the overall Defi ecosystem.

Burning fees are low hanging fruit to meaningfully increase income for the RenVM network, as the number of nodes increases we are more secure as a network, which as we get closer to REN phase ZERO, we want to be as secure and motivated a network as we can be. If raising BURN fees does not see a desired outcome, we can always re-adjust to market conditions, and the lower the fees.

The expectation is that after two or three epochs we will be able to see the impact to the network, if it is as expected volume will continue to grow, and income will grow with it. At this point after the data is collected the community can come to an agreement about whether there has been a fruitful impact or not.

This RFC has no impact on future chains, which will begin with 0.1% minting and burning fees unless another RIP proposes otherwise (and is accepted).

Implementation

Nothing is needed to implement this change. RenVM governance (currently controlled by the Ren team as per Phases · renproject/ren Wiki · GitHub 1) can set the BURNing fee with a call to the renBTC (and other) smart contracts.

2 Likes

I’m personally against further raising fees, I think it would hurt us in the long-term by stunting the growth of high-volume use-cases and hence hurting our volume long-term. It could likely as well end up with less fees earned for RenVM, since we can’t make good predictions about how the fees affect volume currently. And I don’t like the idea of ‘trapping’ renBTC holders, making it more expensive for users to return their renBTC to native BTC than what they were expected, based on the burn fees that were present when they first minted using RenVM. I think the psychology of users matters when it comes to retaining their future interactions with RenVM.

If you are trying to start a campfire and you start piling on big logs too early, you are going to choke the flame.

And as mentioned elsewhere I’m very sceptical of the methodology of looking at previous epochs, calculating what the rewards for the nodes would be with a higher fee, and saying how much more the network would have earned with higher fees. The assumption that volume is unaffected by fees is obviously wrong.

But it would of course be interesting to hear what everyone thinks.

And lastly as a general remark, I think it is more beneficial for us to focus our efforts on reaching out to other projects and proposing integrations with RenVM, instead of spending so much attention on the fees, specifically how much we should raise them. Increasing volume is the ultimate strategy for growing and securing RenVM, as it increases the rewards for the darknodes without having to make transactions more expensive for users.

5 Likes

The data collected would suggest that nobody feels trapped with our primary competitor wBTC, their users are able to operate just fine with higher BURN fees than we currently list.

This circles back to RFC-000-0002 having flexibility in fees so we can accommodate both high volume use cases that require low fees in order to function since they can’t make their volume work at higher fees. This RFC still has not been converted to a RIP and creates a lot of value for dark node holders, and opens up the world of possibility for new integrators who can be entered into time-based smart contracts that lock in fees for delivering on volume-based benchmarks, if you don’t bring the volume you dont get the discount. etc

You say this but the data speaks otherwise since epoch 1 we have had low Burn fees, and the highest correlation with the overall DEFI TVL, which is driven by high yield opportunity. BURNs have been high one month low (repeat), having low BURN fees has not increased the BURN rate, our TVL is higher than ever. This is an opportunity for the network to increase darknode income while still maintaining a discount to MINTs.

I agree with this statement. Am I incorrect in saying that the capability to raise and lower the fees has been in place since day 1, how much effort is really going into this?

If the income drops as a result of raising fees, which to date it has not and has propelled RenVM into one of the highest income projects in DEFI, the fees can be lowered just as easily as it was raised. I agree the path to more volume is exactly as you stated through integrations and new use-cases, but to continue to incentivize new Dark Nodes and prove that we are able to continue to grow the top line is also important and signals the project robustness.

1 Like

I am strongly against fiddling with fees at the moment for various reasons. I will try to make it as short as possible:

  1. renVM is in a very early stage, the numbers we see now are irrelevant, sure it might seem great to make it beneficial to lock up more nodes and increase value of the REN token but that attitude is completely driven with node operators in mind and not users, this could be detrimental to a project in early stages. Why do you think YouTube, Facebook, Insta, Snap and all those projects all were ad-free in early stages? Should they not have considered profit maximization in early stages to raise awareness with investors?

  2. Until we see release of RB 2.0, Greycore, Sharding, Smart contracts, any host chain <> host chain support and so on we simply do not know how the market perceives the project. No fee change will change that fact.

  3. As Max mentioned this can be perceived as unprofessional to existing users. renVM does not process small volumes on a consistent basis (1000 BTC mints are not small players). Users, most importantly integrators, need to be able to rely on a consistent and reliable infrastructure. The precedent the governing body of renVM sets now should be set with a very high standard from the get go to capture long term relationships which will bring exponential growth. We can’t think “we will just change it in the future”, for us is a small change but for an integrator it can be a very bitter experience.

  4. What is by far more important for a project like renVM (infrastructure) is network growth. Fee changes at this stage is irrelevant to that factor. Focus should be at network growth, not rent seeking optimization for the controlling body.

  5. The TVL/TVB drama is over now (thankfully) as we have seen security measures to soon be in place to alleviate the pressure and reduce risk. There is no need to worry about fee optimisation at this stage.

  6. If REN is undervalued don’t worry (!!), don’t let the current hype deter you from rational decisions with the best interest of the project in mind. renVM as a project is already funded beyond necessary, no need to worry about investors, those who are impatient now will regret it later. You should arguably be happy it’s undervalued, bigger opp to hoard before it leaves everyone behind.

  7. Let’s assume this works and node rewards go up with no bad consequences, what did we achieve? Some would argue all we achieved was pumpanomics. The fee discussion will be an important topic at a later stage when the project and volume is at a more mature phase. Let’s not keep poking the bear when not necessary.

  8. We should not compare ourselves to WBTC, or use them as reference, very different projects and our mindset should be to pave the way in this new category, not adapt ourselves according to competitiors who we already know have limited capabilities in comparison.

  9. “If we woulda done this, then we coulda got that” is simply a deviation from statistical analysis to prove an isolated point. Historical data can be used to take decisions on future adjustments, but modifying historical data to set a narrative for future decisions is more predictive analysis and that requires MANY more variables to be somewhat useful.

  10. For any tech startup, revenue at early stages is not that important, it is critical to have foresight and clarity over the vision with a high time-frame in mind. It is for this very reason VC’s usually have lockups in their deals to ensure the team can focus on the critical issues at hand and not be driven by investors desire to maximize profits. (Just to give an example, I recently got a close friend of mine to look into and invest in this project, and not a small investment, he has been in the VC field for 10+ years and his main concern was how professional the governing body of the project acts, with long term vision in mind. Not current revenue. Especially since this is crypto)

With all that said, I DO appreciate your work in all this data @preston, I am just of the opinion that you are getting a bit ahead of yourself with making changes. Please do not stop your analysis.

I hope this post is taken well, I will emphasize again, network effect and future growth of the project with integrators and users is the most critical part… And patience :slight_smile:

6 Likes

I’m against this. I feel a reliable exit fee is important. If any fees should be raised, it should be mint fee (though I also am against that at the moment for the same reasons as have already been impressively stated).

We are getting more nodes every epoch, it is a good steady healthy growth. I want to see more people use RenVM, not make a few more bucks and shut out an active user. With renbridge 2.0 coming “very soon” we will get some new blood, I would really like to see mint fees up to .2% for BSC but that’s for another thread. Regardless, with BSC, Solana, and more, we will get loads of new volume and nodes registering. Greycore will add additional trust and may pull more users away from wBTC. Let’s just keep this rolling we seem to have found a good place!

1 Like

I’d hate to beat a dead horse, so I’ll keep this concise.

Given 1) the volume data, 2) competitors prices, and 3) the external APYs you gain with renBTC, I’m 100% in favor of raising burn fees even for just 2 weeks as a test alone. However, once any sort of higher velocity integration comes online, I see the value of decreasing fees… but until then, let’s experiment a bit.

Ultimately, I believe everyone agrees there should be highest fees for low velocity use cases such as Debt/Lending, CDPs, yield farms, etc which provide high returns for users and lowest fees for high velocity use cases such as DEXs. However, people also seem to worry about impacting high volume/velocity integrations that don’t even exist yet. Why not experiment until those integrations come live? Could be months…

2 Likes

I think we should raise the burn fee to 0.15%. In the early days, it was thought that the freemium model was good, but every one in Silicon Valley’s start up culture knows now that was not a great idea, and you should charge for your product as early as possible. The freemium models creates a long cycle of not profiting, huge investor cash burn and only ~1% of startup succeed. The one that does in the likes of FB etc, are unicorns. Imagine Uber, still not having a profit, it’s a terrible bubble. It’s not a business, a business by definition needs profit. The Uber/Lyft is on the race to not die out by double downing in fully autonomous cars. Guess who’s going to wipe them out, who’s their competitor? Tesla is, with robo-taxi. In order for this to succeed, we should think like Elon Musk, going first principles. Can we make the best product, cheaper, lower, better by many times? The only way to do that is to continuously deliver on all front, bringing a profit to node operator and and delivering value to consumers.

If there’s truly a demand for this product, and we are charging the lowest in the industry even with the burn rate increase, then volume should not be affected unless there’s a superior product out there.

At this current time there’s 18 operator coming down with 7 coming online, thats -11.
So for the first time since a while, it’s turning negative. People are cashing out and trying bring more money since with ATH 1.09 last I’ve check would mean it cost $109K to run a node. That’s worth 2 BTC, anyone would go to sleep with 2 BTC and wake up at the end of the year for a double on their money. We simply have a product, and it needs to bring a return that keep node operators happy, the whole system is base on these node operators. To keep a low ROI for node operator at their cost is bad for business.

The whole cross chain is filled with ARBBot congesting everything. We are a solution that’s helping with what’s a real issue here. GAS Fee is increasing everywhere, and they’re doing just fine and filling up everywhere, why are pricing ourself short.

The whole notion that FB grew without ad etc, that’s right as far as reducing friction for easily consumable product. The ad equivalent here is not the fees, that’s not the friction. The ease of use and how simple the platform can be used by the consumer is friction. If we have an excellent, smooth, easy, no brainer product, that’s where Ren would succeed.

We should not be short term focus, but product market fit and proper pricing is very important. Without these adjustment and becoming more data-driven, we will not be able to make the right decision. So I agree with increasing the burn fee and collect some data. The data brought forward by @preston is reasonable as I see no effect by raising this burn rate.

I’m just typing my thoughts out super quickly, so a little choppy, but it’s Valentines. Cheers

3 Likes

How about we lower fees and see what impact that has on total volume?

2 Likes

I’m against this proposal at this point for various reasons already mentioned above.

I do want to add that I am in favor of more experimentation, and like to see some experimentation with burn fees in the future.

But first things first I believe we need to finish experimentation with the mint fees, which should include lowering the fees again to better measure price elasticity.

3 Likes

Can you explain your rationale for this? With your argument, if we’re trying to measure price elasticity, we should continue increasing fees considering volume went up despite increased fees.

I think we should leave mint fees as is and pivot to burn fees. If we go above 0.25%, we’ll be materially above wBTC mint fees.

Volume did not go up as has been shown time and time again. It went down.
If you want to be sure, lower the fees.
Adoption is the key for success

4 Likes

I agree experimenting is the only way we get data to make a sound decision. Even if we bleed a little to learn a lot, I think that’s worth it because there seems to be a lack of consensus around this and we need data to put some solid answers on the table. Without doing this, the real result is a loss of time and energy of this community chasing its tail. That energy could be going to other needs like integrating more to grow our market share.

I don’t really see a difference between mint fees and burn fees but I think it might be good to plan to increase fees incrementally. Maybe .01 or .02% an epoch until we hit some predetermined amount. This would provide a long term incentive for nodes which is needed to keep operators from cashing in on recent pumps and walking away. It would also keep us competitive compared to others in the DeFI market by allowing us to stay fairly low (right?). Lastly, this change being minor and gradual would make it easier on any customer who feels trapped by the changing fees. Coming back to the original point, it would also facilitate the needed experiment in a sort of stepped-wedge style design.

I am against raising fees.

1 Like

Btc volume is down on last September. So there’s every reason to reduce mint fees and see what the impact would be to btc volume if we wanted to test price elasticity.

I am against this proposal for the many reasons stated above. We need to focus on integrations and increasing volume. Raising fees by definition will result in reduced volumes and only serves to promote short term profiteering over long term network growth.

3 Likes