RFC-000-007: Increase burning fee to 0.2% on November 16th (start of Epoch 6)

Requests For Comment | RFC
41

Without repeating a lot of the statements that have already been made, I am against raising the burning fee to 0.2%.

From a really simple viewpoint, we need to encourage burning more in the system which to me having a higher mint and lower burn does. In fact, I would even advocate that we should maybe drop the burn rate to 0.5% while increasing the mint to 0.3%.

This said I do agree with the sentiment that raising the burn fee to 0.2% will have little effect on people burning, as I believe the main reason people will burn back is for arbitrage (which if the price difference is enough anyway this would happen regardless). People in DEFI are chasing yields, and as long as the delta is enough they will continue to mint and burn.

42

I strongly oppose raising the burn fee to 0.2% due to all of the reasons stated above.

43

I am supportive of any fee testing that the central Ren team thinks we are ready for. But until we hear their opinion on this, I am opposed to this proposal for now.

I am unsure how to interpret the recent minting behavior after that fee was increased. At first glance total mint transactions and average mint size has declined significantly. Mint volume for this epoch has so far been driven by only two large mints.

Iā€™m definitely not drawing any conclusions from one week of data. And Iā€™m bullish overall about the marketā€™s tolerance for increased fees. But Iā€™m in no rush to introduce another variable when weā€™re still trying to assess the experiment we just started ā€“ unless the Ren team says they would like to study the effects of both tests simultaneously.

I do appreciate the proposal. It gives me a lot of confidence that the communityā€™s future self-governance is going to be strong.

3 Likes
44

This does increase darknode awards from the original .1%mint, .1% burn. It only (probably) further incentivizes burns and then new mints, keeping the amount of BTC in custody down and volume up. .4% mint fee and 0% burn fee is the same principle, or even a .5% mint fee and a negative burn fee. Iā€™m saying itā€™s worth considering, especially if we head towards a dynamic fee mechanism. Again, Iā€™m happy to be told what Iā€™m missing here but this principle definitely doesnā€™t entail lowering darknode revenue from what I can see.

1 Like
45

Note: I wrote my comments before reading any of the others because I didnā€™t want to be swayed by them, so apologies for rehashing some arguments others made. The level of discourse in this forum is top-notch!

TL;DR: I agree with the proposal to raise the burn fee, but only at the conclusion of the current minting fee experimentation.

My interest is primarily with the TVL to bonded ratio as a prerequisite to becoming fully decentralized, which given the recent negative attention to RenBTC (and general complaints/chatter out ā€œin the worldā€) I feel is important to achieve sooner rather than later. If we are not careful we may win the battle of adoption, but lose the war of regulation.

Is it self-serving for a DN owner to suggest raising fees? Yea, of course it is. Thatā€™s the point, actually. The beauty of this system is the incentive structure, which we need to nurture in order to work. Higher earnings = more dark nodes = higher REN price = higher TVB. We all know the formula by heart.

Some additional quick takes:

  • I donā€™t believe anyone is balking at 20 basis points to burn when they are earning crazy yields in DeFi.

  • The suggested N number of days warning before implementing a change is good to avoid the feeling of being ā€œheld captiveā€.

  • My personal bias is that BTC holders feel safer on chain when theyā€™re not actively yield farming, and will therefore pay a price for that service/security.

  • The longer we wait, the more difficult it will be to experiment with fee changes in the future.

  • Starting with a low fee leaves us with very little ā€œdry powderā€ to induce changes in behavior later if it is warranted (in the same way that TradFi interest rates are now at 0 or negative in many places and leaving central banks with fewer tools to stimulate the economy).

Lastly, I will reiterate that although things do move fast in this space, we should proceed cautiously and methodically, and avoid stepping on other experiments before we can form reasonable conclusions about their impact. Letā€™s wrap up mint fee tests first.

2 Likes
46

I am in favor of increasing the burn fee to 0.2% for the simple reason that I do not believe it meaningfully impacts RenVM volume either way but we know for sure it meaningfully impacts REN price which is important to sustain TVB.

The 0.1% was picked arbitrarily and we donā€™t know what the right number is before potential users are actually deterred from using RenVM. Iā€™d change my mind if there was some data that proves the 0.1% increase actually makes a difference and deters users.

1 Like
47

It seems like this thread has been in the context of burn-and-release transactions, for which I am against for all of the reasons already given. However, the Multichain will introduce burn-and-mint transactions, and this proposal would make those transactions economically unfeasible and threaten a significant avenue for fees.

Under this proposal, burning renBTC off Ethereum and minting elsewhere in the Multichain would cost 30 bps (20 bps to burn on Ethereum and another 10 bps to mint on a non-Ethereum chain), and 40 bps to get back (20 bps to burn on a non-Ethereum chain and another 20 bps to mint on Ethereum). One-way is already quite material, but 70 bps round-trip is simply impractical for cross-chain arbitrage and may encourage markets of wrapped renTokens on other chains courtesy of cheaper bridges (eg renBTC from Ethereum to Solana via Wormhole).

Fees must be low enough for burn-and-mint transactions to be economically rational. Otherwise, an arbitragerā€™s edge would have to exceed the round-trip fees of 70 bps. Disincentive to move renBTC across host chains could bottleneck liquidity and adoption on the very chains the Multichain was built to foster. If we enable liquidity between host chains, I would expect burn-and-mints to generate much of the fees we all want to see with zero effect on TVL.

Against for burn-and-releases. Doubly against for burn-and-mints.

7 Likes
48

I think itā€™s safe to say people likely burn renBTC after harvesting yields from DeFi activities, or during points of high volatility, high arbitrage, or high demand to exit the ETH network into BTC.

I generally think price sensitivity during burning will generally be lower relative to minting.

Minting is an up front tax while burning is more like a capital gains tax.

Iā€™d be more open to discounting gains than a tax at the point of investment.

The fact that the increased minting fee has had little impact leads me to think a burning fee increase will have an even less likely negative impact on transactions volumes.

Higher return on darknodes > Higher buy pressure on REN > Higher TVB to TVL ratio

2 Likes
49

I am currently running 2 Darknodes and my buddy is running 1, we are based in Dubai. While I am not very knowledgeable on the technical side of things I would suggest to wait to raise the Burn fees.

We just raised the mint fees and it would be good to give it 30 days to see the results. Also I believe in the long term of the project and as much as I would love to earn double the fees right now I prefer to earn less to get more adoption and allow people to get used to using Ren.

My suggestion would be to revisit this in January 2021.

50

I am against this RFC, I am agree with Max and Chico.
We need time to adoption, we have only one big working partner. Arb is very interesting and Chico is right.

51

I am totally against this idea. We just raised fees this epoch! Why not give it a little more time to collect more data based on the new fee structure. Besides, with the harvest hack our numbers are going to be way off anyway. We are so early into the gameā€¦ Give people a chance to use the system without giving them a reason to use a centralized service at a cheaper rate ( For lower BTC transactions )

1 Like
52

Indeed, securing the network is the ultimate goal here. Especially if high-velocity integrations will take another few months to be productive this will be of high importance.

1 Like
53

Good points. Just to clarify, would it really be necessary to charge for each hop? Isnā€™t a set or maximum charge possible, regardless of the journey? Iā€™m not desperate to change fees immediately but this might change the direction we should be considering for the next fee % test.

54

11-23 at this comment counting posts above.

  • Many of the support believe fees in general should increase.
  • Many of the against believe mint fees should increase rather than burn and/or are open to increasing burns but would want to wait for several weeks.
  • Some believe burn fees should be reduced to support arbitragers and traders
1 Like
55

Iā€™m for increasing (Iā€™ve been long-term against fee increases) however I believe now is the right time to increase the mint fee. Itā€™s a rounding error for each burn.

2 Likes
56

Excluding 1 large mint and the hack transactions, volume is lower than last epoch with 3 of the lowest 5 days occurring in the last week. (Thanks to whoever pointed that out (shiny?))

So people saying it isnā€™t affecting volume need to reevaluate their opinion. Half the volume would be the same fees, but I would much rather have lower fees and higher volume than stifle volume at this early stage. This is all too early to tell and thereā€™s no reason to change things right now.

3 Likes
57

Ufff, the quality of the comments here is really fascinating. Happy to be part of such a community with incredibly enthusiastic members.

Currently REN is behaving more as a custodian than and interoperability infrastructure. I would be very happy with very little amount under custody, yet the users decide how they wanna use it.

Today renBTC generate between 5-12% APY on Curve.
Today WBTC has a 60% collateral value on AAVE.
And so onā€¦

So today in about an hour I can put a BTC on Ethereum, without KYC, borrow 60% in DAI and then get a 25% APY on yearn.

Of course for the Hardcore BTC Maxi, there is nothing safer than a buried engraved private key protected by guns and red meat proteins.
So, yes these implies many new risks but, again, the users have spoken.

Today, the more digital wave of users (ETH holders, Defi natives, etc.) like to have their BTC with much more utility either as collateral, of while farming, or liquidity providing in close-to-zero IL pools. And I believe those are the reasons BTC are under REN custody and the amount is not likely to drop in the near term future.

So the current Ren PMF is BTC on Ethereum easy and no KYC on ramp, from the perspective of the users. Knowing this I would rather adjust the Fees accordingly, and increase Burning fees ainā€™t one.

Will this change with Multichain? Letā€™s see.

Actually to validate this hypothesis, I would be more interested in the one week (or two) prior to the change announcement. Would that announcement make users to burn before the change OR they wouldnā€™t care much (i.e. because BTC on Ethereum gives you much much more utility).

I would rather a higher minting fee or a continuous fee (for parking/custody the BTC) (But hey, thatā€™s an other debate.)

Vote : Against.

Now, if it is only for specific period of time, just to gather data, I would be FOR.

2 Likes
58

People. The timidness around raising fees is based on no data, itā€™s based on fear. If our Burn fees were at 0.2% we already would have surpassed Epoch 5 node income of 22BTC, and we are only 8 days into this epoch.

The flow in and out of the network is not considering our fees in the slightest, it is based on market forces and DEFI yields. To think our fees make a difference is absurd, it is such a small amount. Further, when people burn they have no other choice in provider. Why would we not raise this amount?

Making sure the DN network is profitable and secure is very important, we have already made our first mistake as a DAO, we missed out on a big epoch by not raising the BURN fees along with the raise in MINTS last Epoch from a business standpoint to date it has cost our network income 35% in DN income. Let that sink inā€¦

The decisions made here have real income consequences, and we are only on day 8 of his new epoch, the decision to only raise Mints might cost us over 100% by the time it is said and done. Please reconsider your votes, this network has potential but itā€™s potential is only hampered by its governance.

1 Like
59

I understand your argument. Still, I believe we should argue by enhancing security and not maximizing darknode profitability. The good thing is both results in a higher REN token price.
I just want to highlight the way we choose our arguments. As darknode operators, we are here to think longterm which could include cutting our very own rewards if we can thereby support the network.
Also, I think we should quickly take a look at what is the worst case that can happen when raising the burn fee:

  • Burn volume is decreasing => darknode rewards should stay the same as burn fee is higher and therefore we should have no security problem.
  • Market is blaming REN for high fees => we can make active announcement about the fee change and educate the users that REN is still in it`s early days.

Do I miss something or do we have very little to lose but much to win here?

1 Like
60

I think youā€™re considering only one of the use cases: DEFI yield. We, as darknode operators, have to consider all the different scenarios that can be affected. Please read @DavidPerkins post to expand your views beyond Defi yield.

To the team, I suggest that we agree on a high percentage approval rate for sensitive proposals such as this one. Fees can have a real impact on darknodes income and on the overall usability of network.