Name: Increase minting fee to 0.3%
Category: Protocol
Status: Proposed
Scope: Increase the minting fee to 0.3% and monitor impact.
Overview
Following up on RIP-000-003, this RFC proposes increasing the minting fee for all assets to 0.3% at the end of the current epoch (19 days from now). After a minimum of one week, and at maximum of four weeks, a new RIP will be proposed.
The new RIP may propose raising the minting fees to 0.3%, lowering the fee to 0.20%, or keeping the fee at 0.25%. Generally, this will be guided by the impact on revenue that is observed: no impact resulting in a raise or staying of the fee, and negative impact resulting in a lowering of the fee. 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). We have seen income from Mints steady or rising over the last epoch.
The reader should be familiar with RIP-000-001 and RIP-000-002 because this RIP is, in some sense, a continuation of them. Much of the discussion already had on these RIPs applies to this one too.
Details
After last month, the TVL within RenVM has held due to the increase in value of BTC, the total BTC locked has gone down as desired, and the revenue of RenVM increased slightly (despite the decline of DeFi yields). As required by RIP-000-001 it is time to propose the next change in the minting fee to continue trying to find the right fee based on demand, but also to continue demonstrating that we can lower the TVL without necessarily impacting revenue.
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. It is important to isolate impact as much as possible, so this RIP only proposes modifying minting fees, and strongly recommends that burning fees not be changed until experimentation is complete. See RFC-000-007 for many in-depth discussions about this particular point.
Minting fees should be adjusted to meet demand, however, we must also be mindful of changes in market conditions, and the fees of other projects that also offer BTC on Ethereum (given that this is dominantly our current major source of revenue).
The expectation is that after one week (and before four weeks) a new RIP will be opened that proposes a further increase or a decrease. This is an opportunity for the community to come to an agreement about whether there has been a material 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).
Summary
Raise the Fees to 0.3%
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2021 Jan, 7 - Mint Volume is 48% higher than the prior epoch, highest Mint Volume since Epoch 7 (pre-fee raising) with 3 additional days remaining in the epoch.
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Raising the MINT fees to 0.3% will increase Mint income in future Epochs by at least 16% if it matches the same current volume. This translates to roughly 3.0-3.5BTC in income for Darknode Operators. If we raise the MINT rate to 0.35% we stand to earn 6-7BTC
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Raising the fees from 0.1% to 0.25%, has increased Dark Node Operator income by ~19BTC since Epoch 8, while supporting 198 new nodes, a 15% increase in operators since Epoch 7.
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If Mint Volume maintains velocity 264BTC/Day, renVM will see a 76% increase in MINT Volume from epoch 9 to epoch 10. Despite raising the fee 2.5X over the last two epochs.
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Total Mint + Burn volume has risen 87% from epoch 9 to epoch 10 (current), this corresponds with increased yield opportunities in DEFI.
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With the number of new Dark Nodes currently 127 being added to the network, this lowers current node operators expected income by 7.6% if no action to increase fees is taken while maintaining current MINT volume.
Don’t Raise the Fees to 0.3%
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By not raising the fees, more users might use renVM.
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By not raising the fees, the network is not focusing on increasing velocity and new high-velocity applications might not have enough profit margin to utilize renVM
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By not raising the fees, the arb bot volume might increase.
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By not raising the fees, Minting Volume might increase.
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By not raising fees, New Integrator - MEW whose volume is still just starting, charges 1.0% + renVM fee 0.25% on top for a total of 1.25% This total fee discourages new MEW users out of the market, so renVM should not raise its fee, which might incentivize new users on MEW.
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By not raising the fees, RenVM will be more competitive with centralized or decentralized exchange fees when exchanging BTC for renBTC.
Implementation
Nothing is needed to implement this change. RenVM governance (currently controlled by the Ren team as per https://github.com/renproject/ren/wiki/Phases ) can set the minting fee with a call to the renBTC (and other) smart contracts.
