Name: Increase burning fee to 0.2% on November 16th (start of Epoch 6)
Status: Draft - Rejected
Scope: Motion to increase the burning fee to 0.2% and monitor impact. If passed, allow users 7 days to exit their renBTC position at the initial 0.1% fee. Measure data after fee change and determine best next step at that point.
This RFC proposes increasing the burning fee for all assets to 0.2% after 21 days from (Oct. 26th) submission of this RFC. Same as the terms of RIP-000-001, after at minimum one week, and at maximum four weeks, a new RIP will be proposed for future adjustments.
Potential outcomes/next steps after the implementation of raising burn fees:
- If raising the burning fee to 0.2% has had no impact on total income (or somehow it has had a positive impact), then the new RIP will propose raising the burning fees to 0.3%. If raising the burning fee to 0.2% has had a negative impact on total income, then the new RIP will propose lowering the burning fees back to 0.1%. The new RIP will be the point at which everyone can voice their opinion about the impact (whether it has been positive or negative for income).
- Leave burn fees at 0.2%.
For additional context, see Details within RIP-000-001. After heated discussions with the community, this proposal consolidates key arguments 1) in support, 2) against, and 3) counter-arguments to support the proposal for such an increase in burn fee.
- Setting a higher burn fee now allows us to strengthen the lever of lowering burn fees in the future. Lowering burn fee to 0% or providing a rebate becomes even more attractive in the future if we raise fees now. A discount on an already cheap product is less meaningful.
- Similar to our recent mint fee increase, a change of burn fee from 0.1% to 0.2% will likely result in non-material change in burn volume
- Increasing burn fee will double the rate of burn revenue and will 1) subsequently, increase earning potential and 2) theoretically, increase TVB by increasing $Ren token value and incentivizing more registrations
- Other protocols have changed fees in the past; in addition, many protocols have much higher fees than Ren does. (Uniswap at 0.3%, Coinlist wBTC at 0.25%, Curve at 0.04%). 0.1% is significantly below industry standard for our service and is insignificant/negligible compared to gains earned by RenVM users
- Mint and burn volumes can be measured independently
- RenVM currently has more flexibility to change fees now before additional major integrations at which point, we would have to more greatly consider impact to partners
- Many hypothesized that 0.1% to 0.2% mint fee would have little to no impact on volume, and as we can see from the large 1,500 BTC mints, there is indeed proof users are still using RenVM at high volumes even with the change in fee. Yes, more data here would be useful, which the 2 weeks in discussion of this RFC should allow us.
Reasons against and counterarguments:
- Experiment further on mint fee before adjusting burn fee
- Raising the mint fee above 0.2% places us more expensive than our competitors. Bringing burn fee closer to an appropriate level brings us closer to a system equilibrium where experimenting further with mint fee can be more meaningful
- Increasing burn fee now will impact our data collection of the mint fee change
- Although a valid concern, it is possible to fix two mispriced products simultaneously and fixing the pricing strategy of products is more important than collecting data on a single variable. The mint data would also be more meaningful with a burn fee that is closer to equilibrium.
- TVL decline velocity may decelerate
- This is very well possible, but the only way to truly find out if a burn fee increase impacts volume is to test it. From what we’ve observed so far with mint fee change, the burn fee likely won’t impact burn volume either
- Increasing burn fee is unfair to minters that entered into a renBTC position expecting to exit their position at a 0.1% burn fee
- Argument is invalid and can be used at any time. Fees change, and RenVM was not and is not morally or contractually obligated to keep the fee as is. However, to mitigate risk of negative perception, we can have a 7 day delay of implementing fees to allow those to exit their renBTC position if they so wish
- Increasing burn fees will eat into arbitrageurs or renBTC users’ profits
- Arbitrageurs and minters likely make far more than 0.1% with their renBTC position. Our goal is not to be a free service, and I’m sure many RenVM users find value in our system and would be willing to pay a fair fee for utilizing it
For a future state of greater decentralization of RenVM, we must reach equilibrium of TVB >= TVL/3. At time of writing, we have $327m TVL and $46m TVB. $46m !=> $109m. RenVM is out of balance by a factor of 2.4x or operating at 240% which is above capacity
To help illustrate the logic of this RFC, consider this analogy. RenVM is a factory that has been running above capacity at 240% (out of equilibrium which is fine in this stage of decentralization.) To reach equilibrium, would a factory manager wish to give away 140% of value or would he/she first attempt to raise factory capacity to meet demand? Raising factory capacity means increasing TVB (Ren value and nodes registered).
Aiming to increase TVB by increasing Ren value and nodes registered by reaching a more appropriate fee structure is overall value accretive for RenVM. Aiming to decrease TVL by decreasing burn volume or offering burn rebates is overall value dilutive for RenVM. If attempting to raise TVB is unfruitful, we can then, in the future, reduce our newfound, higher burn fee to better incentivize burning.
As a side point, potentially better for a separate RFC, polishing of and increasing marketing for wBTC.cafe to increase burn volume through wBTC might be an interesting lever to consider as we aim for equilibrium.
P.S. special thanks to @mitche50 for helping consolidate arguments for and against.
- Measure sentiment of this RFC on Nov 2nd; if positive, submit RIP on Nov 9th
- If there is support for the RIP, make announcements to raise awareness of the increasing fees, so users may exit their renBTC position at 0.1%, if they wish
- Increase burn fee to 0.2% on Nov 16th
Nothing is needed to implement this change. RenVM governance (currently controlled by the Ren team as per https://github.com/renproject/ren/wiki/Phases 5) can set the burning fee with a call to the renBTC (and other) smart contracts.
- Increase burn fee in the near future.
- Decrease burn fee in the near future.
- No fee adjustment in the near future.
- Focus on mint fee in the near future.
Edit: added a poll as requested by @frilledshark. First time making a poll in discourse, and he let me know I made it without showing votes (my bad). Can’t add show votes after polls been made unfortunately.