Proposal Description: Protocols need to generate substantial revenue in order to be sustainable and grow long term. This proposal aims to increase protocol fees in order to grow the DAO treasury.
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Problem: Current protocol fees are tiny and way below current market standards, and will never be enough to fund any sort of growth initiatives even if TVL and volume increased by 10x.
Current Market of various protocols on Cardano:
Dex aggregator on Cardano earned protocol fees in February 2024: ~100,000 ada.
Borrowing/Lending platform on Cardano earned protocol fees in February 2024: ~50,000 ada.
Lenfi expected protocol fees on pace for all of March: ~400 ada.
Summary of Problem:
Right now total active loans on Lenfi v2 are 1.5M ada with an average borrow rate of 8%. Let’s predict active loans increases from 1.5m to 3m ada over the rest of the month - that would translate to 20k ada in interest to lenders per month (at 8% average borrow rate), which would equal a total of 400 ada a month in protocol fees (with current top UR fee of 2% of interest). If eventually said active loans increases from 1.5m to 10m ada over the next several months, protocol fees per month would still generate only 1.33k ada per month. This means growth for Lenfi will be extremely hard to achieve with current state of revenue, even with volume increasing substantially.
Solution:
Fees need to be increased significantly in order to have a healthy protocol that plans to grow. I propose an initial four part solution:
Increase protocol fees on v2, regardless of utilization rate - paid for by the borrower.
All loans on V2, the protocol fee to the borrower: 20% of interest.
Introduce same protocol fee on v1.
All loans on V1, the protocol fee to the borrower: 20% of interest.
Increase liquidation fee and introduce a portion of it as an additional protocol fee.
2.5% liquidation fee will be increased to 5% and split: 2.5% to liquidator, 2.5% to DAO treasury.
Introduce same liquidation fee on v1.
Liquidation fee will be introduced at 5% and split: 2.5% to liquidator, 2.5% to DAO treasury
Keep in mind loan interests will not be increased by this proposal as the borrowing APR will remain the same - thus borrowing usage should not change.
Future plan if the proposal is approved:
These increased protocol fees will grow the DAO treasury in a way that can be used much more effectively for the growth of Lenfi and $Lenfi holders. Following 3-5 months under these new protocol fees, a new proposal should be made using these accumulated DAO funds as liquidity to fill various pools on Lenfi V2. This will accomplish three things: 1) increase TVL, 2) make it more cost effective for users to borrow given there will be deeper liquidity pools, and most importantly 3) create a new revenue stream to bolster the treasury even further as the DAO will now be generating lending fees as well.
Once all this is achieved, Lenfi will be in excellent shape. Additional token utility via fee sharing to stakers, CEX listings, any growth initiatve will then be on the table.
Thank you for the proposal. I will try to look from technical point and share what I think.
On V2 we have validator level protocol fees. This means we can enforce that protocol fee must be paid on smart contract level.
Additionally, when loan is created it has it’s fees and rates set, it means if the change takes place - it can only be applied to new loans.
V1 does not have protocol fees in place, therefore we would have two options:
a) Update smart contracts (total rewrite in Aiken) and add fee feature
b) Add the fee on off-chain level (using UI).
First will take much longer than second one, but second one can be avoided by user if user finds a way to build transaction not using our UI.
This might be redundant, as protocol fee is paid at the time of repayment. Liquidation is technically repayment by another party. There is no reason to increase both if higher protocol fee is desired.
I think this needs much more consideration and deeper understanding of the liquidations mechanism. Liquidation fee is built to fairly compensate liquidator to cover transactions and token swap on DEX’es.
Specifically when collateral token price is going down rapidly, liquidator will liquidate a loan on price N, but can only swap on price N-x%. Therefore, if there is no liquidation buffer (fee), we might end up in situation where no one will liquidate the loans.
Again, since we have protocol fee AND liquidation fee, we should look at them as two different mechanisms and maybe stick to protocol fee only.
On V1 this could be enforced by Liquidation Oracle, on both new and existing loans. Currently when liquidate lender can take 1.6% of the remaining collateral as a compensation.
the main thing sir is that we need to build up the dao treasury and we also looking for ways that $Lenfi token holders will benifit from holding Lenfi!
E.G: On indigo token holders get Liquidation fees from liquidated loans, Platform fees which are made off deposit and withdraw… and lastly Loan paybacks interest. these all adds up when we combine them, sir.
These are simple things that the community is asking for as token holders… Can the team deliver this please/?
First thoughts. We still do not have SafetyModule in place. This IMO is of greater importance as it directly impacts fees it also provides a backstop for the pools. Once the SafetyModule is in place fees for the Lenfi Pools can be discussed. Mantas would you concur?
You stated Following 3-5 months under these new protocol fees, a new proposal should be made using these accumulated DAO funds as liquidity to fill various pools on Lenfi V2. What pools are you referencing? Are these pools created and maintained by other individuals and projects? If they are then why would Lenfi be providing liquidity to them?
They are many pools on v2 right now that simply don’t have enough liquidity in them.
For example, ADA/HUNT has only 12k ada in it right now. If I wanted to borrow 10k ada using Hunt as collateral, I would pay an insane 139% interest rate, because of the low amount of liquidity. If I chose to do so, the person after me would not be able to borrow as there is no liquidity left.
If the DAO has accumulated ada for a few months, it could add ada to all these pools - growing TVL, making it cheaper for borrowers, and creating a new revenue stream for the DAO (lender fees).
The pools in v2 don’t need to be filled by projects alone, anybody can add liquidity to them.
, my full support is granted