Name: Adjustment of mint/burn fee %s
Scope: Begin the process of adjusting mint/burn fees to 1. collect data on the relationship between fees and volume to ultimately 2. identify the point of equilibrium where price does not materially impact volume.
This RFC aims to initiate formal discussions with the community to adjust mint/burn fees. Across Ren mediums (TG, Twitter, etc), there have been many valid arguments for and against the adjustment of fees. With the launch of Ren Forum and with 4 months since mainnet launch with $846m (77.6k BTC) in total volume, this RFC aims to bring the community together on this hot topic.
RenBTC comes in at 2nd place for BTC on Ethereum (https://btconethereum.com/) making up roughly 18.6% of the supply (22k BTC), with wBTC at 73.9% (87k BTC). This is quite the accomplishment as wBTC launched in early 2019 and RenBTC launched May 27th this year.
To compare the two solutions:
- Mint/burn fees are 0.1% as what was decided by the team prior to launch.
- Does not require KYC
- RenVM is currently secured by the Greycore and is on the path towards decentralization (https://medium.com/renproject/renvm-and-the-road-to-decentralisation-72213c3bee3a)
- wBTC fees are 0.25%
- Requires KYC
- BitGO is a centralized custodian
Just from a simple high-level comparison, it’s clear that RenVM offers a superior product for a lower price, which is fine as a method to increase early adoption. However, with 4 months of no issues, no lost funds, and no errors, RenVM has proven strong product-market fit, and it may now be a fitting time to begin discussions to adjust fees.
As some in the greater DeFi community may see RenVM as relatively young, this RFC proposes that we increase the fees to only 0.2%. This will still be less than wBTC, but the Ren team and community will be able to begin gathering additional data points. (Please see Implementation for the steps we can take on this.) In addition, this gives RenVM a buffer to continue to increase fees >= wBTC’s fees as we progress to the next stages of mainnet. During these next stages, we will be able to prove RenVM’s robustness with less reliance on the Greycore ultimately providing greater security/value to our RenBTC Minters.
In addition, as the Ren team continues to 1) develop integrations with additional destination chains and 2) onboards additional tokens, RenVM will continue to prove to provide greater value to RenBTC Minters than wBTC will provide. One key piece of functionality we have yet to witness is the “Burn and Mint” transaction as described here (https://github.com/renproject/ren/wiki#cross-chain-transactions). This transaction will allow the transfer of RenTokens across multiple chains e.g. Burn RenBTC on Ethereum and Mint RenBTC on Polkadot. This key functionality offers utility of RenBTC in multiple chains outside of Ethereum which is something that may demand greater fees than wBTC’s current 0.25%.
Parts of the Ren community have expressed concerns that increasing fees 1) can decrease adoption/volume and 2) will increase friction with future chains/tokens/adopters. These are valid concerns that predict future behavior without data.
Without testing with fees, we will never know if or how much adoption/volume/friction changes. With any business providing unique products or services, price elasticity is something that must be measured and determined. Currently, our only data point involves fees at 0.1% and current volumes. For us to develop and fine-tune an automated algorithm for determining mint/burn prices, the Ren team and community must first collect sufficient data to build these economic models. (This is just based on my understanding, I do not have insights to Ren team’s view on this).
- For those against the RFC, please respond with why and please define what parameters or criteria must be met for you to be ready to increase fees.
- For those for the RFC, please share anything that may have been missed or any additional thoughts.
- Increase fee to 0.2%, measure change in volume, and conduct impact analysis.
- 2a. If volume is materially impacted negatively in “X time”, decrease fee in small increments, measure change in volume, and conduct impact analysis.
2b. If volume is not materially impacted in “X time”, increase fee again, measure change in volume, and conduct impact analysis.
- Repeat 2a. and 2b. until we reach a point of equilibrium of a fee that does not impact volume significantly.
- Once A) next stages of decentralization occur and/or B) multichain integrations launch and burn/mint functionality is launched, I believe the additional value RenVM provides at that point can command a fee >0.25%. However, just because Ren may potentially be able to command a greater % fee, it does not necessarily mean it should. We can discuss this when A) and/or B) occurs. In addition, See point 3. in “Other considerations”
- “Material impact” above must be defined. I would propose that impact be quantitatively measured by 1) change in total revenue [Price * Volume] to measure impact to business and 2) an Y% change in volume velocity to measure impact to adoption. It would also be beneficial to measure this impact while attempting to remove outlier data (e.g. launch of Curve spiked RenBTC volume). Qualitatively, the team can measure if there is any change in tones of integration/alliance conversations.
- "X time" or the length of time we’d like to measure how fees impact volume must be determined.
- For enhanced security once the next stages of decentralization occur, TVB should be >= TVL/3. Depending on the timing of the next stage, fees are a lever we must consider to increase the value of TVB. I would caution against using fees to lower TVL as that would be a measure that would ultimately decrease the utilization of RenVM.