RFC-000-032: Temporarily Decrease Minting & Burning Fee In Time For H2H

BlockchainBard · January 14, 2022, 8:54pm

Name: Temporarily Decrease Minting & Burning Fees In Time For H2H
Author(s): Shilliam Shakespeare (@BlockchainBard)
Contributors: Various community participants (Discord)
Category: Protocol & Fees
Status: Draft
Scope: To discuss the potential reduction of minting and burning fees to incentivise H2H usage.

Proposition/Background:

Host-to-host arriving on the RenBridge brings with it an enormous opportunity to put our bridging technology into new hands, and exponentially increase our userbase, network volume, feedback, and overall target audience. It also gives us a much-needed opportunity to become competitive in the bridging space once again, by incentivising and encouraging usage of Ren’s products - especially our anticipated H2H capabilities and features.

Observations/Concerns:

My personal concern is that the currently excessive 0.36% minting fee is surpressing the project from gaining increased user adoption on the altar of protecting TVL. As Arvie pointed out in this week’s Community Call, when choosing a bridge - the user simply compares minting fees and opts for the cheapest one (regardless of any other benefits/features). These users also do not share our concerns over TVL, and simply want the bridge that offers them the least friction possible.

My fear is that offering just H2H incentives won’t attract users while this 0.36% fee continues to potentially act as a financial ‘barrier-to-entry’, and we should in fact consider TEMPORARILY reducing friction on a protocol-wide basis to encourage H2H adoption and usage (from the user’s first mint).

Given some of the support from other community members, I feel there should be a strong discussion on significantly decreasing the minting and burning fee to compliment the H2H launch and announcement.

Targets/Objectives:

When it comes to tracking the effectiveness of reducing fees, I think the following are good starter metrics for the community to consider and analyse:

An increase of unique addresses using the RenBridge (can this be tracked?)
An increase in unique visits to the RenBridge site?
Daily volume target: $15m-$20m (currently $7,429,269)
Monthly volume target: $400m - $500m (currently $208,019,554)
Darknode fee target: $500 - $1,000 per epoch (currently ~$400).

The community is more than welcome to provide additional suggestions as to how we track the success of H2H with such fee incentives.

Evidence/Data:

Direct evidence/data here is a tricky one, but I will share some of my personal observations which I feel support the premise of the RFC:

Several users on social media have pointed out to me (months ago) that the fees were too high for them, and they wanted me to explain why. I’ve spent a long time going through my old tweets but finding their original comments is unfortunately like trying to find a needle in a haystack.

We’ve also seen a visible reduction in mints through the RenAssets bot for example. With the overwhelming majority of bigger TXs being burns. This I feel has indeed helped to reduce the TVL as the team wanted back in September 2021.

While trying to compare fees, I managed to find this AnySwap medium article from June 2021, where they ran a free trial incentive for the public for one month to support ‘Anyswap Router V3’. They also claim to be the most competitive on the fee front, having the ‘cheapest fees amongst all cross-chain plaforms’

Something for the community to consider:

A Twitter user yesterday shared his views with me regarding Ren’s current fees:

Feedback from DeFiDad regarding the current fees:

Here are the results so far from my ongoing Twitter poll, but the responses are too unreliable to be taken with serious consideration:

The Contradiction/Confliction:

I think our current approach towards fees sends a conflicting and contradictory message to users (especially as we’re on the cusp of heavily promoting H2H usage).

On the one hand:
We will announce H2H and promote it as heavily as possible as a community, as well as plan marketing incentives/use the CEF etc.
But on the other hand:
We’re also telling users not to use our bridge ‘too much’ because we’re more concerned about security, and we’ve put up this high minting fee to discourage such usage. I don’t think this is a good look, or the right message to send out to potential users. Especially if one of our goals is to increase volume.

The TVL:

As you may already know, the main argument for increasing the fees to begin with was because the team shared their concerns about the TVL being too high. This was a completely valid argument, and the community voted to raise minting fees and lowering burning fees to decrease the TVL.

The core objective was to significantly decrease the TVL and prioritise security as much as possible (especially with the upcoming transition to the Greycore). Ren is not 100% collateralised, and with all the hacks that have occured in DeFi - the community (including myself) voted to change the fees to favour TVL.

My personal issue with the TVL fee change, was that there was no clear objective, or definition of what a successful change in fees would do for the TVL. No target was specified, and the fees were changed on the loose premise of ‘reducing the TVL as much as possible’.

Has the current minting fee impacted the TVL?’

If we look at data from the Command Centre, we can see that 3 days before the Snapshot vote was passed - the TVL was sitting roughly at $1.1bn:

One month later, on October 26th - the TVL went on to hit an all-time high at $1.5bn:

The TVL did finally start to come down, as expected after the snapshot vote. But it took until early December before we were back down to the TVL seen at the time of the snapshot.

On the 13th December - the TVL finally went below the levels at the time of the snapshot.

As of today, the TVL has shown a trend that supports the predicted decrease after changing the fees. Also worth noting that network volume has also declined during this same period.

Since the time of the snapshot vote (23rd September) The TVL has been reduced by $196,135,434.

Whether this reduction was worth changing the fees is ultimately for the community to decide.

Other points to consider:

The RenBridge in its current state can already compete in all the key areas required of a bridge:

Security
Robustness
Reliability
Speed etc.

But I feel we aren’t competing in the main area users care about most - fees. I worry and speculate this may have cost us a lot of potential users to cheaper bridges (users that we may have to win back).

With H2H, we should instead focus on getting people ‘through the door’ - even for just a few months - as much as possible trying the tech, increasing user adoption, obtaining feedback from them, and letting users experience first-hand the benefits of our bridge. Playing with the UI, and taking advantage of our superior UX. I believe there will have to be a point as a project where we start prioritising TVT over TVL - and H2H could be our perfect opportunity to do this.

Having such a high minting fee disincentivises and discourages user adoption by making our cheaper competitors look more attractive, creating a financial ‘barrier-to-entry’ - when we should be making the RenBridge accessible and usable to all people regardless of TX amounts etc. Announcing a reduction of fees on top of the launch has the potential to act like a double catalyst - with words like ‘cheaper’ and ‘free’ always attracting user interest as Arvie highlighted yesterday.

Another question I think the community needs to address is:

‘Prioritising the TVL over user adoption and competitiveness will come at what cost?’

Here is how I envision the new fees being implemented (subject to a community vote)

0.1% to 0.15% | Mint fee
FREE to 0.15% | H2H TXs
FREE to 0.1% | Burn fee (to assist with TVL).

With this approach towards fees:

The expensive ‘barrier to entry’ is removed (making H2H usage more likely).
We become competitive in ALL areas (security, robustness, fees etc.)
We have the best chance at attracting new users/increasing our user base post-H2H.
We have a better chance at ‘winning back’ potential users we may have lost to cheaper competitors.
DNOs could make potentially increased fees from the incentivised mints/burns.

Making the changes temporary:

Such fee changes would obviously be a temporary venture with the aim of supporting and complimenting the H2H announcement. After a time period of 1-3 months, the community could review the impact of H2H, or change the fees once more if the volume and TVL reach unstable levels (see below).

Concerns/Observations:

The obvious disadvantage to reducing fees in this manner is that the TVL could indeed begin to increase dramatically. While most of the community anticipates an increase in network volume after H2H, it is impossible to predict by how much.

If the TVL and volume were to dramatically increase, then I would be happy to support another RIP/RFC to raise fees once more - but the specifics will need to be decided.

What level of TVL is too much?
What fees would we revert back to if so?
How long would we be willing to keep the H2H incentives going if the TVL stays the same?

One way this could be addressed is by having conditional changes to the fees (as proposed by @Thomm I think).

The community could agree to keep the H2H incentives as long as TVL < $2.5bn for example. If the TVL went above that figure we could always increase the minting fees once again.

These exact figures however need to be addressed and agreed by the community beforehand.

Please share your concerns in the mean time fRens, if there’s enough support for this RFC then I shall encourage its escalation to an RIP.

Given the expected launch of H2H at some point this month, the community would have to act swiftly and vote to reduce fees in time for the announcement

– Shilliam.

MaxRoszko · January 14, 2022, 8:55pm

*Posted under ‘General’ category until it’s complete/follows the RFC format

Edit: Moved to RFC category on 18th Jan 2022

Maggie · January 15, 2022, 4:53am

Thank you @BlockchainBard for putting this RFC together.

I do agree with your proposed ranges for each fee type with the only exception of H2H fee which I think it could be between free to 0.1%.

Reading the screenshot from Anyswap that Shillian posted, it becomes clear to me that their marketing was really oriented to sell the product from the user perspective and for developers as well:
- For users: low fees and speed of transaction,
- For developers: we ship in two weeks and speed of transaction

This bring me to the subject of marketing that although is not the subject of this RFC it touches it a bit because we won’t be able to compete indefinitely on 0 fees . I think that planning beyond the temporary fee reduction period is crucial and for that marketing is paramount. We need to move the competition and the narrative now with this h2h lunch to where our advantage sits instead of chasing their strategy (fees only).

What makes us different and better? Is it because only us can move certain assets? Is it the UX? Is it that we do not have limits for transaction? Whatever makes us super special for the users and devs should be the core of any marketing push even more than the fees because as it has been mentioned this is temporal.

Let’s not play in their playground, lets bring them to our turf!

Woodgast · January 15, 2022, 11:20am

Thank you @Blockchainbard!

I give my full support in reducing the Mint fee prior to H2H launch. The Confliction part in this RFC sums it up perfectly.

I also support the fee structure.
With the exception of H2H TXs, like @Maggie mentioned, I’d reduce the voting range from (FREE to 0.15%) to (FREE to 0.1%), I’d even go further now with (FREE to 0.075%), but it might be too narrow.

As both RFC got split appart, I do think it’s important to concatenate the votes into a single RIP. We are building a fee package, the fees are interdependant and shape our global strategy.

In order to have a clearer TVL management :
I would add a TVL target to the vote as part of this package, so that the new Mint fee is valid under this target only. I was also thinking of a lower TVL limit, this would give:
If TVL > higher TVL limit | the entry/exit fees are adjusted (0.36% / 0.075% ?) → TVL decreases.
If TVL < lower TVL limit | the entry/exit fees are adjusted, according to this vote → TVL increases
Repeat the process

Here is the vote as I would picture it:

0.1% to 0.15% | Mint fee
FREE to 0.1% | H2H TXs
FREE to 0.1% | Burn fee (to assist with TVL)
$X | higher TVL limit
$x | lower TVL limit

This needs to be decided along side the RenLabs team.

This, that’s why I was asking in the discord if we could have a marketing channel, that would form a new DAO working group. This launch is critical and Ren needs to be pushed on the front stage, I can’t picture this without an organised and aggressive marketing campaign.

Exciting times ahead!

Arviee · January 15, 2022, 11:54am

I’m heavily against a single snapshot vote (if that’s what 1 RIP implies) as that would offer a lot of different options to vote for and only increase the chances that a winning option will be won by small margin (because votes will be more dilluted) and the will of DNO will be less defined. Not to mention that this gives a lot more power to DNOs with big number of DNs.

Ideally, when creating a vote, we want to have as little options as possible and those options should be clearly distinguishable (no close options like 0.10%, 0.11%, 0.12%).

Woodgast · January 15, 2022, 2:36pm

I was more reffering to a single RIP than a single vote. I see your point about keeping few options into a single vote and I agree with it.

Stanzorz · January 18, 2022, 4:48pm

@BlockchainBard one thing I haven’t seen discussed here (maybe I missed it) was the duration of the temporary decrease. Should we assume it will be the same duration as the initial H2H fee? I think that would make the most sense, so we can reassess all fees again when the promo period ends.

Also just want to voice my support for @Arviee 's point about making each fee a separate vote, and no close options in each vote. Intervals that result in no more than 5 choices seems appropriate.

Thomm · January 18, 2022, 7:56pm

I believe this is currently not an easy thing to track as you need to monitor each individual token’ mint/burn contract on all the host chains. Happy to be wrong though, would be great if we can just monitor RenVM txs to gather this data which would greatly simplify the collection of such metrics. Can someone from the team chime in if that is possible @MaxRoszko?

The fee actually went in to effect on October 5th. Also, it is better to look at the TVL in BTC as looking at the USD value depends on the Bitcoin price.

This means TVL went down by about 2168 BTC after the fee change went in effect, which at today’s prices is ~90M in USD. However, note the sharp increase in TVL right before the fee went in to effect, putting a stop to this might be even more significant given the goal of the original fee increase.

Having said that, I do support lowering the fees temporarily to help bootstrap liquidity. As you say, it does not make sense to try and bootstrap liquidity while at the same time dis-incentivize “too much” liquidity generation. To quote @Maggie it is like rowing in two opposite directions

This was not me by the way but does make sense.

If we want to bootstrap liquidity this by definition means we are accepting that the TVL will need to increase. Once we establish that we should also establish that we should not row in opposite directions and do what we can to make liquidity generation more efficient (i.e. lower fee barrier).

At the same time though we can also establish that there is a level of sufficient liquidity, and a goal to keep TVL in check, which implies that it is OK to put high fees back once TVL reaches a certain threshold.

BlockchainBard · January 18, 2022, 9:07pm

Thanks for the clarifications Thomm much appreciated I’m glad you agree with the general sentiment of the proposal.

Given we only have 13 days left in the month, I want to try and elevate this RFC to RIP as soon as possible (especially if H2H is coming this month).

My main concern now is getting the vote passed in time, otherwise it will be too late. Timing is absolutely crucial if we want to use reduced fees as an incentive to compliment the launch.

MaxRoszko · January 18, 2022, 10:13pm

Speaking just as a community member, I think we need to consider whether free fees would work, just the same way as yield farmers jump between the best farms and don’t have any real loyalty to protocols. Would those who come to us because it’s free keep using us when fees are bumped up later (because it’s definitely not sustainable to have 0 fees indefinitely, eventually it has to change)? Something to consider at least.

Need some clarification here, what do you mean by H2H transactions? We have the mint fee, the burnAndMint fee, and the burn fee, minting renETH has the same fee as minting renBTC currently, they are not different in that regard. I’m not sure if the feature to set unique fees per asset is live yet, just want to flag that this is potentially something that would need a little time before it would be hard-forked into mainnet (even if it’s not a challenging update, we still have strict development pipelines to make sure no bugs or exploits are introduced from a change).

Everything is on-chain so it’s possible to track unique addresses using Ren, not necessarily RenBridge though because there are other third-parties minting through Ren. But assuming we are talking about H2H assets here, in the short-term only RenBridge will support that so yeah you could easily track it.

Just want to point out that the TVL increase here corresponds with BTC running up in price. Even if the minting fee was 100% the TVL would likely have increased in USD because of the BTC price going up, not because more actual BTC got minted, so it’s more fair to check it against BTC:

I don’t have any official statement from Ren Labs at the moment, but it would be something along the lines of a moderate position, although it’s up to the community. We’re open to the minting and burning fee being changed, but advise against extreme changes as ultimately Ren Labs bears the most risk from too high TVL at the moment. Ren Labs would not be comfortable if for instance the mint fee was set to 0%, and possibly not 0.1% either. But it could certainly be below 0.3%, but posting any real numbers would be arbitrary because there is nothing magical about any specific value in this case (that we know of at least).

We are certainly also trying to speed up Greycore deployment now that most of the technical blockers are resolved.

fuzzylogic · January 19, 2022, 12:23am

I agree that “no fees” doesn’t seem to be a valid proposition - although our main competitor did just that for a while.

Since all our analysis concerning fees still amounts to spit-balling, I’ll just do that and say 0.1% flat seems a fair medium. I don’t think with the changed landscape and the multitude of competitors our TVL would shoot right back up.

Maggie · January 19, 2022, 2:48am

I have made myself this question too and that’s the reason I believe H2H transaction should not be 0 but significantly low 0.05 or 0.07. This way we ensure some earning for Darknode owners is received during this period.

Arviee · January 19, 2022, 7:34am

I’ve been speaking with a lot of defi folks to get the sentiment regarding fees and even managed to learn some stats from other major competitor… In short, the conclusion I’ve came up with was that small fees can work even from the start. So on the 17th I had written this idea in our discord:

I was thinking more about fees and what do you think about having 0% mint fee (for non $renBTC assets! and for a short while!) and smth like 0.1% fee for H2H burn&mint? This way interested 3rd parties might solve a lot of our (potential) liquidity problems, because they’ll see value and a chance to earn with this offer, and DNs will still pocket nice fees with H2H. And in case we want to add an extra cross-community marketing touch - we can remove all fees for a certain asset, ex. $MIM. Thoughts? At first glance sounds like a decent compromise between what different community groups want. (edited)

Downsides:

TVL might explode and it’s unclear yet what implications this might have
Some of our transfers will be more expensive than what (bridging) competition offers. But there are other competitors, who also charge fees for same assets and have decent volume…
Arguably less marketing potential than just “FREE”
3.1 Arguably weaker user acquisition (= weaker ability to reach more people)

Upsides:

Easier liquidity bootstrapping, hopefully.
DNs get H2H fees
We maintain minting fees for $renBTC
We still have an opportunity to completely remove fees for certain asset, forming a special-bond with the community that represents that asset. This might offset point “3.” in downsides.
Even with 0.1% we’ll be A LOT cheaper for guys with smaller bankrolls (due to no min. cap) and by default there’s a lot more of smaller guys than , so we can market from this “robin-hood” angle + have word of mouth effect.

As of now this is my favorite option. But the minting fees for non renBTC assets totally depends on how confident we’re that we can get liquidity on our own or with our friends. And if we think this will be a problem, than 0% for a short while, like couple of weeks max, can make sense. Otherwise, if we’re sure liquidity is not going to be an issue, 0.1% everywhere can work as well.

polo · January 19, 2022, 11:08am

Arviee, Iam very aligned with your way of thinking and seeing things, but I think that 0.1 for everything (M, B and B&M) would be the best. .

Arviee · January 19, 2022, 11:12am

I can totally see how this is the case. 0.1% across the board is, actually, my preferred long-term fee structure

BlockchainBard · January 19, 2022, 12:46pm

For the record, I’m not a fan of implementing ‘free’ fees at all. I simply put free as a potential option to cater to all opinions of the community - it should still be an option to vote for even if there’s not much support for it. I don’t think the community would even vote to implement ‘free’ transactions, but I still want them to have the widest choice possible when voting.

My preferred choice would be 0.1% for all TXs (even if Arvie points out we lose the benefits of the ‘free’ label).

The voting options could look something like this:

MINTING

NO CHANGE
FREE (no fee)
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%
0.08%
0.1%
0.15%
0.2%
0.25%
0.3%

H2H (mintAndburn):

(To be decided separately in this RFC )

BURNING

NO CHANGE
FREE (no fee)
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%
0.08%
0.1%
0.15%
0.2%
0.25%
0.3%

Followed by a second vote to decide the duration of the implementation, and what conditions relating to TVL perhaps?

Arviee · January 19, 2022, 12:51pm

Community has previously expressed their desire to always have a “no change” option, which is currently lacking from your list.

BlockchainBard · January 19, 2022, 1:09pm

Thanks (updated).

fuzzylogic · January 19, 2022, 1:46pm

Seems like 0.1% (my preference too) is getting some traction. Another thing I’d like to add:

a flat fee across all operations is easy to understand for users and a better sell from a marketing perspective. We want people to to keep coming back for a seamless service and not force them to look up and calculate in which direction they need to use which service for a “better deal”.

BlockchainBard · January 19, 2022, 2:06pm

Yes. I like the idea of having a degree of uniformity in regards to fees. Much simpler for the user too if they know they’re paying the same fee regardless of whether it’s a mint, burn, or mintAndBurn TX etc.

Topic		Replies	Views
RFC-000-034: Consolidated Fee Proposals Requests For Comment \| RFC	13	1070	January 28, 2022
RFC-000-010 : Determining initial mint/burn fee for new chains Requests For Comment \| RFC	11	905	November 18, 2021
Decreasing minting fees to 0.15% Requests For Comment \| RFC	82	2144	November 18, 2021
RFC-000-006 Raising Burn Rates 0.2% Requests For Comment \| RFC	2	554	November 18, 2021
RFC-000-015 – Raise the burn Fee to 0.2% Requests For Comment \| RFC	14	729	November 18, 2021

RFC-000-032: Temporarily Decrease Minting & Burning Fee In Time For H2H

H2H (mintAndburn):

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