Proposal: Activate The Protocol Fee Switch with V2 Launch [Poll Attached]

Short Description: Activate uniform Protocol fees to secure a fair and transparent fee structure at mainnet launch.

What are Protocol fees?

Protocol fees are an adjustable parameter, which allows the protocol to maintain itself self-sustainably by collecting a percentage of the interest of each repaid loan in a certain pool. All collected fees are then handled by the DAO as part of its treasury. As stated in the documentation, the default value for all pools is 0, which translates into 0% collected fees from interest payments. But implementing

  1. Protocol fees will create an inflow of ADA and CNTs into the DAO treasury.
  2. It will stimulate the DAO members to be proactive and engage in discussions on how to utilize the collected funds.
  3. The collected funds will give the DAO a broader range of possibilities when it comes to making use of the treasury capital.

Why implement Protocol fees for all pools?

  • Consistency without complicated fee structures - Applying protocol fees uniformly across all pools creates a consistent and straightforward fee structure that is easy for users to understand. This approach reduces complexity for both users and developers, making the protocol more user-friendly.
  • Equal market opportunity - It promotes fairness and inclusivity, as all users and liquidity providers get the same treatment regardless of the pool they’re using.
  • Predictability - It makes it easier for users to anticipate the underlying fees they will incur when using any pool without having to navigate varying fee structures.
  • Simplified DAO governance - Setting and managing fees uniformly across all pools can streamline decision-making and reduce the need for complex parameter adjustments.

Tiered protocol fees or flat protocol fees?

Implementing fees is a feasible strategy to bring liquidity to the DAO without forcing holders to lock their LENFI tokens in a smart contract. However, the opportunity brings up another question: Should we implement a flat fee for all pools or agree on tiered percentages based on the Utilization Rate (UR).
The reality is that there is no right choice, as both options have their pros and cons. For example:

1. Flat fees

Pros:

  • simple to understand;
  • equal for everyone regardless of the market conditions.

Cons:

  • they do not reflect the dynamic nature of lending markets;
  • during periods of high demand (high UR), the protocol might lose out on potential revenue. Conversely, a flat fee might discourage borrowing in low demand (low UR).

2. Tiered fees

Pros:

  • translate into better market responsiveness, usually resulting in more revenue for the protocol in high UR periods combined
  • better risk management through risk-adjusted pricing (higher fees at higher UR compensate for the increased risk).

Cons:

  • might seem complex to new users;
  • could lead to potential user deterrence during periods of high demand (high UR), possibly leading to decreased protocol usage.

After conducting a temp check, the community has shown a general agreement that the Protocol Fee parameter should be applied to all pools. The exact fee percentage and model will be chosen among a few options:

Option 1:
Flat Protocol Fee of 1%

Reference: The poll initiated by @Cardano1 - Protocol Flat Fee on all Lenfi V2 Pools

Option 2:
A flat Protocol Fee of 2%

Reference: Proposal: Activate the Protocol Fee Switch with V2 Launch - #21 by buckeye

Option 3:
Tiered Protocol Fee with the following parameters:
Tier 1: If the Utilization Rate (UR) is below 15% - 1%
Tier 2: If the Utilization Rate (UR) is between 15% and 45% - 2%
Tier 3: If the Utilization Rate (UR) is above 45% - 3%

Option 4:
Tiered Protocol Fee with the following parameters:
Tier 1: If the Utilization Rate (UR) is below 15% - 1%
Tier 2: If the Utilization Rate (UR) is between 15% and 45% - 1.5%
Tier 3: If the Utilization Rate (UR) is above 45% - 2%

A consensus option with a smaller margin between each tier.

You can find a link to the temp check here: Proposal: Activate the Protocol Fee Switch with V2 Launch

  • Option 1
  • Option 2
  • Option 3
  • Option 4
0 voters

Voting Rules

  1. Voting will last 5 days.
  2. A minimum of 101 votes are required for the proposal to be approved for on-chain voting.
  3. Only 2 of the options with the most votes will be approved for on-chain voting.
25 Likes

What’s the criterium for getting the role to be able to vote? I’ve been a long-term holder and keep up to date, but think I haven’t been active enough on this forum to get the right to vote or something?

3 Likes

You need to be online for 5 mins and read a few posts. As a matter of fact, you should be able to vote now.

5 Likes

wheres the governance proper going to be? on muesli? :thinking:

1 Like

Governance vote is always accessible through the Lenfi dapp.

3 Likes

This is so dumb. I never set this up because it was frustrating. I finally set it up to vote. I can’t. Because who knows.

1 Like