Name: Determining initial mint/burn fee for new chains
Category: Protocol
Status: Draft
Scope:
For the sake of conversation, I propose that we discuss and align on how we determine initial mint/burn fees. Currently we set mint/burn to 0.1% regardless of the chain we are bridging. I would like to open up the discussion and determine whether or not 0.1% is fitting for new chain releases. Given there will likely be significant upfront volume if there are appropriate initial use cases, 0.1% may or may not be the right starting fee.
Overview
This RFC proposes that we should consider if an universal 0.1% initial mint/burn fee is appropriate for new chains.
Some potential questions to consider:
Is a universal fee appropriate?
How did we arrive at 0.1% mint/burn fee?
How do we determine an appropriate fee for new chains?
What are the costs and benefits of a case-by-case initial fee?
What are the opportunity costs of having a universal initial fee?
Potential outcomes
A framework to determine appropriate initial fees for new chains in the future.
Details
As we have seen with RFC-000-007, amending fees can be a contentious issue and takes time. By discussing this now we can position ourselves to do the analysis upfront and make better decisions as we add chains.
Thanks to @DeFiFrog for help in preparing this proposal.
What do you think of initial fees?
Let’s discuss further
Let’s increase from 0.1% mint and 0.1% burn
Let’s decrease from 0.1% mint and 0.1% burn
The Ren Team’s arbitrarily set initial fees are fine (0.1% & 0.1%)
Ive written this elsewhere but I’ll add my opinion in this more specific context. Ren is a 2 fold service: it can gas transaction pushes same as ethereum-like functionality we call mint and burn; and it oversees through advanced MPC the custody of peoples money. Both of these services are valuable.
An example of the value of custody and why i believe continuous fee should exist is greyscale. Look at how they custody a small amount of ethereum and their fee is selling it for 3x the value. Why? Because their customers had no access elsewhere and were willing to pay much more.
Keep in mind this is not a fractional reserve custody where people can expect to be paid for providing money with the expectation of the bank unknowingly use their money, rather ren offers a runless bank, aka a whole reserve. This is a critical building block, anyone who cuts corners on this may be able to undercut fees temporarily but at the end of it all the product valuation shouldnt get so complex and sneaky, meaning who cares if others can fractionally reserve and therefore custody for free? Who cares if someone could even pay to custody? Ren is doing things the right way and thats why when all the other legos crash down as a whole reserve, it will stand. And that is a valuable service we should charge a continuous fee for.
If we are already struggling to correct our TVL/TVB ratio, it may be logical to start with a higher mint fee than 1% on new assets since there will most likely be a flood of mints in the beginning, especially as in the case of all these new assets coming soon - we are the only game in town.
Three reasons for keeping a low fee (0.1%) at the launch of a new host chain, that I think are important:
renAssets are only useful on a host chain if they have trading volume on their own on that host chain. For instance, without a sufficient amount of renAssets minted on a chain, any liquidity pool that is created will be struggling with high slippage, which will disincentivize users trading through that pool. And without useful liquidity pools, there is an disincentive to mint renAssets on that chain in the first place, because you can’t trade them with anything without high slippage. This chicken and egg problem is made more difficult to break through if there is a high initial minting fee
Starting with a low fee gives us ample of space to see how minting and burning behavior is affected on that host chain from fee increases. If you start high, and get low minting volume, how much should you decrease to start seeing meaningful volume?
To build our competitive moat on a new host chain, we want to grow aggressively and become a standard on that chain, and low fees help make that so.
People are most likely to bridge renAssets to new chains if there is a more exciting yield than what currently exists on ETH. This would suggest that a low fee more than likely will be inconsequential to their decision process.
You are assuming that 0.2% is not a low fee, also by starting at 0.1%, you are leaving out the possibility of testing what lowering fees can do for volume, while not decreasing income to nonexistant.
This I agree with, it is to our advantage to become the standard on any new chain out there. Do we have any competition tho? Or are we just competing with ourselves at this point?
We need an initial lower fee to kickstart liquidity for the new asset also I am in favor at some point to seriously discuss about how can we implement a continuous fee without hindering ux.
With all the hype Acala/substrate gets and their apparent volume from their mandala events, I’d think they would be a great candidate to test elevated initial fees.
Filecoin has no one else bringing it to Ethereum yet and Ren is days away from being the first and only bridge. There may be some decent initial volume to bring liquidity and this would be an example of maybe bumping the fee up a little to capitalize on that and not suffer a boost to TVL without increasing the TVB accordingly. I would encourage discussion though as there may be points to consider against this
When establishing fixed or separate fees for each chain, we ought to consider:
-Is the amount of effort for the Ren team the same to integrate chain X vs chain Y? If the amount of effort is comparable, I think the fees across chains should be fixed. A flat fee across the board is easy to understand and also easy to explain to others.
I respectfully disagree with this. My thoughts below:
The goal is to bring as much renBTC to Acala as possible, not shake them out as they come. These are our customers, we want to give them a great value so they keep coming back because Ren is a great deal.
I think a stronger incentive would be to set the mint fees the same as they are now, or the same across all chains, but for the first 2-4 weeks a new chain is live (e.g. Acala), run a promotion advertising lower fees for a limited time to encourage minting/adoption and gain new repeat users.