RIP-000-001: Increase minting fee to 0.2%

Name: Increase minting fee to 0.2%
Category: Protocol
Status: Final - Accepted - Implemented
Scope: Increase the minting fee to 0.2% and monitor impact. Continue raising with future RIPs if there is no impact, otherwise lower back to 0.1% with future RIP.

Overview

This RIP proposes increasing the minting fee for all assets to 0.2% at the end of the current epoch (4 days from now). After at minimum one week, and at maximum four weeks, a new RIP will be proposed.

If raising the minting 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 minting fees to 0.3%. If raising the minting fee to 0.2% has had a negative impact on total income, then the new RIP will propose lowering the minting 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).

The understanding is that this process will continue until we find the point at which the total income of RenVM is maximised (based on volume vs fees). This RIP asserts that income (e.g. fees earned), not volume, is the metric to measure. For example, it could be the case that volume decreases to 80%, but because the fees have doubled, then the overall income has increased. The

Details

After 6 months, this epoch is the first epoch in which overall fees earned by RenVM have not increased. The hype around yield farming has also died down a little. Now that we are a reasonable way in to the life of RenVM, and volume is not being driven by crazy unsustainable yields, it is the right time to begin gathering data about supply vs. demand for renBTC.

The long-term goal is 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.

Minting fees should slowly be raised (through several RIPs) until we see overall income for RenVM drop materially. At that point, we begin lowering minting fees again until we see overall income for RenVM increase again. At this point, we can keep the minting fees steady, and move on to experimenting with burn fees.

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.

EDIT: This RIP has no impact on future chains, which will begin with 0.1% minting and burning fees until some level of stability in adoption has been achieved.

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.

18 Likes

I would respectfully dissent from this proposal for a few reasons:

  1. Traditionally, assets are valued by their ability to generate cash flows in the future . The sum of future cash flows as the result of high growth and adoption today may have a greater effect on price than generating income today at the expense of lower growth.

  2. Growth is measured not only in the number of integrations, but by the ease in which liquidity can flow between chains. A truly cross-chain product should give other chains their best chance! Let’s let liquidity flow to Acala, Solana, and the rest of the Multichain, and not via competing bridges.

  3. Liquidity spurs adoption, and flooding the market with renBTC now across chains makes it easier for those chains and dApps on those chains to boostrap volume once live.

  4. Centralized stablecoin and RenVM volumes suggest the market values permissionlessness over trustlessness, which is great for us. That means users are comfortable with the Greycore, even with just Ren in it, which (1) lets RenVM suppress fees while optimizing for growth and (2) is a strong counterargument to RenVM needing to monetize now.

  5. It will be difficult to isolate and measure the impact of a fee change. Without A/B testing, we cannot be confident that changes in volume and income will be due to the fee change and not to changes in the market around us.

In all, I tend to favor the long-term benefits of maximum growth right now.

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Traditionally that is entirely true. And by no means do I disagree with optimising future potential and lower yields now.
But cryptocurrency is anything but traditional. Only retail investors invest with that perspective, while the other 80% (probably optimistic) invest with the sole purpose of return within a few months if not days.
Yield farming has only worsened this demonic idea of quick returns.

For the other ones, I won’t respond directly to them, but instead argue that they won’t fix the problem.

More integrations probably rely partially on a public perception of RenVM, and centralisation is an easy point to nitpick on. It is essentially a way for an evil government or some outside power to stop the system.
By delaying now value propositions, you need to apply to traditional investors to increase the bonded value (by increasing the price of Ren, or getting them to bond Ren)

If we really want RenVM to be used as the interoperability solution, we need to do something about the difference in bonded and locked value and centralisation. The easiest solution is increasing the mint, as it won’t increase the amount of locked value and is probably the best way to get more value to Ren.

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  1. Absolutely agreed on this point. However, I would say that the long-term success of RenVM very much depends on getting the economics right. This minting fee change is part of a larger mission to get more information so that we can take these next steps. Getting TVB close to TVL is critical for the long-term success (and therefore future returns) of the network, and knowing how minting fees will impact growth of TVL is important.

  2. Acala, Binance Smart Chain, and others are coming soon, but will not necessarily have the same fees. That is something very much missing from this proposal, but I will edit to clarify: the change only applies to Ethereum (albeit, all pegged tokens on Ethereum).

  3. This is definitely true, but I think with $300M in liquidity we are already well setup on this front (at least enough to begin with these experiments). Perhaps a counter question: how much liquidity is enough before we begin experimenting? Knowing that experimenting comes long before full implementation of an algorithmic self-adjusting fee (for which fuller decentralisation is very important).

  4. No counter points immediately come to mind here. In principle, we could keep fees here (although remember 0.1% was chosen very arbitrarily due to a lack of any initial data), or we could even drop them while we move to the Greycore. However, without good returns (and no inflation to provide subsidy), it may be hard to keep node number up, or incentivise governance over Greycore membership. Even with a Greycore that has multiple different projects in it, will other potential integrators see this as enough?

  5. Agreed, but data is needed, and although I agree this is not perfect, things are certainly more stable than they have been, and no better alternative to gather this data has been proposed.

4 Likes

Your points make sense, and even though I have up to now been consistent in the same opinion, I am concerned that the growing disparity between TVL and TVB will make it difficult to bring back in line in order to progress to the next phase. Perhaps it is time to do something, if even a small step such as this.

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Alone, I would agree this RIP has little point in existing. But, the intention is very much for this to be part of a broader roadmap to explore getting TVL aligned with TVB (or vice versa).

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tl;dr below

Guys, who have a slightest worry that this might have a negative impact. All your thoughts are based on an assumption that this will impact user behavior. But the thing is that’s, as I just wrote, an assumption and not a fact.

This RIP is in place exactly for this reason: to prove or disprove this assumption!

Fwiw I think that 0.2% is an industry standard and is 100% acceptable. And a negligible increase for most users, especially considering still very high BTC yields on ETH and a low velocity (number of trades) requirement to receive those yields.

All the while users perform high velocity actions daily with 0.2% fees (ex. Huobi) and 0.3% fees (ex. Uniswap). Which means that people are ok and are accustomed to these numbers.

I also heard argument that wBTC becomes an attractive option with 0.2% fees on RenVM. And I completely disagree with this opinion and here’s why:

-wBTC requires KYC
-wBTC is still more expensive for low’ish volume
-a lot worse UX overall
+wBTC is arguably more safe

+renBTC doesn’t require KYC
+competitive pricing
+super easy and fast entry and exit
-arguably less safe (no insurance)

Regarding safety:

  1. It’s should be obvious by now, that at this stage big institutions are not the target clientele for RenVM and they will mint via BitGo.
  2. Ren team helped retrieve lost/stuck BTC in multiple cases.
  3. A number of high net worth institutions/persons demonstrated trust in RenVM with multiple $1 000 000 - $10 000 000 mints.

So this, at least partially, offsets the “safety” argument.

Summary / tl;dr User behavior change with increased fees is an assumption and not a fact. RenVM soon will have a completely industry standard fee that people are well accustomed to. And I believe it will not have any meaningful effect on volume since RenVM has a uniquely positioned service with strengths that currently no one else offers.

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I am in total agreement with this view and RIP. Assumptions cannot be counted as facts unless tested and proven right.

Is there risk? Yes. Would that risk break the platform and use of renVM? Absolutely not, we can always revert.

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I am in favor of this RIP for many of the same reasons that Loong and other have expressed in the past.

However, there are two things on my mind:
1. Is ‘raising fees’ fairly normal in the industry? I’m less concerned about the fee being .2% (think
this is still incredibly cheap). I think I’m more concerned about public perception of the protocol
raising fees at will and the reactions it would generate from our users.
2. I know we rarely discuss roadmap timelines, but I do wonder where this fits in the overall
picture. For example, are we doing this immediately before the Multihain release or perhaps
several weeks in advance so we don’t catch people off guard? Perhaps the RIP should contain
not only some element of What but also some element of When?

3 Likes

That is huge. Letting liquidity flow through the Multichain and letting users experiment with and migrate to dApps on new chains should be our MO. In fact, raising fees on just Ethereum may herd users toward other chains that offer lower minting fees.

This is addressed by the Ethereum-only fee. Keeping the current fee on other chains will keep the liquidity valves open for them.

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On what basis do we increase the fees to 0.2%. I understand this is an increase to see the market reaction, but why are we increasing by 100%? I’m not saying it’s wrong, but I’d like to understand it better. Why not e.x. 30% or 50%?

I’d argue that this is the biggest reasonable increasem, that shouldn’t see any negative reaction. See my post. 0.2% is basically and industry standard. Not too big (ex Uniswap 0.3% or, lol, Metamask 0.8%) and not too small.

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I am in favor of the RIP however, I do agree with ChicoB’s concerns.

Let’s test first, and one single parameter at a time to fully understand its impact.

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For the points I made in RFC-000-003: Adjustment of mint/burn fee %s, I am in full support of this initiative. In addition…

I agree that this is what the market is showing; however, I believe we must not continue to stray further from the future steady-state equilibrium of TVB => TVL/3. We must:

  1. Reduce TVL (reduce mint or increase burn) and/or
  2. Increase TVB (increase price + bonding)

17 days have passed since that RFC, and I believe it is now even more important to begin this process of appropriate fee discovery. We should not only consider the thoughts/behaviors of minter and burners of RenVM but also the wider DeFi ecosystem’s views of RenVM. During the MakerDAO Collateral Onboarding discussion for renTokens, a key developer/community member Christopher Mooney raised a very valid point. His statement paraphrased:

“It would be nice to integrate renBTC to diversify BTC exposure, but will an integration with Maker increase renBTC volume and ultimately increase the total custody by the Ren team and subsequently slow down RenVM from being able to move forward to the next phase of decentralization?”

Although RenVM’s technical design and current phase is well architected to be secure and withstand attacks, we must consider the long-term economics. The further we stray from equilibrium, the more time/effort it will take to rebalance in the future.

To reiterate my points above, I hypothesize that increasing the mint fee will be beneficial for 2 potential reasons:

  1. Decrease mint velocity to slow down the accumulation of circulating renBTC
  2. Increase the value of TVB; as fee % goes up, we should hopefully see revenue increase assuming that mint volume is not cut by >= 50%. This increase in revenue should also see increased value in Ren tokens and should incentivize additional node registrations.

1000% agree, and we must collect data to properly design a robust dynamic fee algorithm (not sure if the team already has one built).


I believe one other takeaway to rebalance TVB/TVL is to spread wider understanding that RenVM Dark Node operators are paid in the underlying minted asset (BTC). The price movement of Ren tokens are not accurately correlated with BTC price movement. Perhaps Shilliam Shakespeare’s memes can help us perpetuate this message

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I completely agree that getting data on varying fee structures is very important. My only concern is, how reliable will that data be. How do we go about measuring the impact of increasing the fee?

For a fair comparison ideally you’d want large stable volume levels with minor variation daily, and the market as a whole to also be stable. That way movements could be contributed to the fee structure.

We currently have low volume levels and therefore any movements are magnified. We are weeks away from a presidential election, covid 19 is causing volatility in the stock market and a US stimulus package is uncertain.

Based on the above I believe you’d get more meaningful and reliable data in early 2021.

“Alone, I would agree this RIP has little point in existing. But, the intention is very much for this to be part of a broader roadmap to explore getting TVL aligned with TVB (or vice versa).”

I agree with Loong here- in isolation there would be little need for this RIP (and perhaps more to gain by not taking action on it- from flooding renBTC liquidity throughout the ecosystems). However we are also NOT economically secure, or even anywhere close to being so. Achieving a mass of adoption still does not necessarily mean the mint-burn velocity and volume relative to TVL will be sufficient to drive a price of REN that makes the network secure.

We need to begin trying to drive more value to nodes but I fully understand wanting to let renASSETS flow more freely and experimentally to all the new components of the multichain.

Therefore I am very in favour of leaving the mint/burn fees at 0.1% between all new chains and assets, but charging BTC movements onto ethereum (which clearly has substantial established demand and adoption already) more heavily- more in line with the value we are providing by facilitating that particular movement- and of course in absolute terms I think a 0.2% fee is still more than well priced.

My personal opinion is that RenVM is proving to be a fantastic piece of tech which is demonstrating with more confidence as time passes that it appears to be free of critical faults. However long term, decentralisation is a must and (the lack of) remains pretty much the only major point of attack against it right now. It is also quite possibly acting as a blocker to further adoption by certain protocols/would be users, though by how much is of course very difficult to estimate or measure.

I know that we are also waiting for a critical amount of time to pass without significant bugs found to begin decentralisation, and that further use cases (for example native asset DEX trading) might substantially change the mint:burn ratio and volume relative to TVL, however by how much still remains anyone’s guess and will take a long time to see play out.

The current economics are way out of whack and if we want to beat out alternate models like tBTC (who circumvent our type of economic problems via an additional eth bond (as well as KEEP) requirement- but which of course comes with its own host of arguably worse problems including very poor scaling) we need to demonstrate our economic model can work.

People like to quote companies such as Google and Facebook who aggressively drove adoption before monetising with great success, but they did not have a huge economic security issue in the interim as a consequence of that choice.

I believe it is in the best interest of the protocol to begin to gently start guiding the economics into rationality as I believe this RIP proposes- remembering of course any changes of this nature we make right now are totally and easily reversible.

1 Like

My initial reaction was to be conservative but I think we are now at a stage where we should experiment and test assumptions.

Getting the economics right is not just a darknode revenue issue. It’s also important as a signal of our confidence the utility value we provide to users and a statement of quality. RENvm is a quality product that should garner a premium at maturity. At a minimum we should not be underpricing.

I’d love to see the data. This RIP has my support.

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I would lean towards the increase in fee. Not to repeat everyone’s points, but what it boils down to for me is this:

I think the integrations, liquidity, motivation to use RenVM, etc is all moving along quite well. I think most of the folks who take the time to provide input in a forum such as this certainly have a long term mindset, I certainly do… but we must remember that even among all darknode holders, given the speed with how yield farming changes, there is a decent percentage of them who are trying to max yield sooner than later, and may move on to something else.

Oddly enough, increasing the number of darknode holders, and more specifically darknode holders who want to remain darknode holders long term, is at the top of my list, even though it shares more of the reward pie. Increasing the fee, even slightly, will possibly incentivize those “edge” holders to stay around, and hopefully convert their mindset to more long term node holders.

I don’t think if there’s a decrease in volume that it would be enough to offset the increase in revenue. If you’re a user minting renBTC, you’re already knowledgeable enough to grasp the reasoning behind it, incentive increase --> security increase…or you just don’t care either way.

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Good point. And with more volume on the way any shortfall in volume will be temporary.

I’m absolutely in agreement with this RIP and it reflects what I’ve been advocating for a long time on TG.

We need to increase collateralisation - therefore incentivising Ren holders to actually run Darknodes is simply a must.

A slight increase to 0.2% is still very cheap considering Gas fees and compared to competitors in the DeFi space.

Some comparisons:
Uniswap 0.3%
Metamask 0.875%

…getting out of a Yearn vault: 0.5%

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