This second proposal aims to increase value for CRV and veCRV by updating the fee structure across all curve pools
Abstract:
(1) Increase the trading fee from 0.04% to 0.06%
(2) Direct 100% of trading fees to veCRV (set 100% admin fee)
Motivation:
CRV is currently facing strong selling pressure due to high inflation. This results in suboptimal governance participation because governance participants must lock their CRV and price decreases. Introducing a revenue stream for governance participants would increase the desire to stake CRV, reward veCRV stakers, and reduce selling pressure.
Redirecting rewards from Curve pool LPs will not have a significant effect on liquidity and network utility for two reasons:
(1) Curve generates roughly $50M volume/day on $1B deposits. This equates to $7.3M/year, or a 0.73% annualized yield for LPs
(2) Curve LPs are currently generating 35-90% APY through CRV liquidity mining, so the transaction fees are marginal
Increasing the trading fee from 0.04% to 0.06% will likely have minimal effect since Curve is by far the most liquid stablecoin trading venue both on and offchain already - example. Benchmarks against other liquidity sources usually have Curve quoting more than 0.02% tighter.
On the other hand, the $7.3M/year in trading fees would be very meaningful for CRV holders. Circulating market cap of CRV is ~$50M, thatās 14.5% yield for CRV supply if all CRV is staked, but since only $4.5M CRV is staked, that would be 162% yield for current CRV stakers (veCRV).
Specification:
Distribute trading fees proportionally to veCRV
The implementation of this proposal will require a pool migration since current fees have a hardcoded limit of 50% admin fee. The community can decide on the best migration strategy, but my recommendation would be to:
(1) First relaunch every pool with the hardcoded admin fee limit removed and new fee parameters in place
(2) Redirect all CRV gauges to the new pools mirroring the gauge weights of each respective pool
(3) Allow for liquidity to naturally migrate to the new pools due to higher yield
I think this may be too drastic and dangerous as a first step.
You could say, well all LPs have to do is lock the crv they get to start getting fees again. But it also means i can move my liquidity elsewhere and still soak up fees. thus its not a means of keeping liquidity on the platform.
I WANT fees to be distributed to veCrv holders but 100% sounds too big. I was originally thinking 10-20%. Even if everyone wants higher, why dont we just use the 50% cap?
If i understand you right, you want to take trading fees from liquidity prodivers and give them to veCRV holders instead. LP provide real money into protocol, i dont like the idea of robbing them of those rewards. there will be no curve without LP.
Also. Not everyone (especially small LP) wants to play games with veCRV, you should not make complex system even more complex to outsiders. Right now you have to do 2 actions to gain decent rewards 1) Invest to a pool (becoming an LP), 2) Stake tokens (to gain CRV, other gains close to non existant atm). It is already complex enought. Your proposal would mean, the person must also gather CRV and lock them in reCRV. For outside person it becomes harder and harder to dive into the system.
Update: How system works (was not obvious at least for me): Trading fee is always distributed to LP. Admin fee is a fee above trading fee. Admin fee 50% means: Trading fee + 50% Trading fee goes to āAdminā. So original proposal would be 0.06% + 0.06% (100%) = 0.12% fee for protocol users. Its too high, sorry.
I would be for variant: keep trading fee as it is; set 50% admin fee. Unfortunately, there is no such variant in voting. So i would vote for no change.
Opposed unless amended. Curve has so many integrations that migrating all the contracts would be a nightmare. I think a much more substantial upgrade is needed to justify such migration.
Iād vote in favor of 50% admin fee + veCRV distribution.
Can achieve the same result with 0.08% fee and 50% to veCRV. Need to model the impact of the fee increase on trade volume however. I know @michwill did extensive research on this at launch. @michwill can you share the modelling you did back in Feb?
If the goal of Curve is to get integrated by external projects and to be used as a base for building new projects like yEarn did then we should test the 50% cap and see how it goes. Then we can make a proposal to increase the 50% cap to 100%. But it will need to be its own proposal.
Iām in favor of rewarding veCRV and active governance participation as opposed to buyback and burn CRV which should have very minimal impact at launch.
50% admin fee cap should be sufficient without the mess of migration.
I think @michwill mentioned 0.04% was optimal, though it was quite flat from 0.02% till 0.07% so 0.06% should be good.
I think with the admin fee rewards, the effective APY from CRV should hold much better since this will be the first demand driver to buy and lock up CRV together with multiplier rewards.
I agree with the concept of rewarding those who stake their CRV for veCRV with some portion of the protocol fees to provide more incentive for vote locking. I also am in favor of keeping the 50% admin fee during the initial roll-out of this change. Additionally, I propose the proportion of the protocol fees that are to be provided to CRV stakers is used to purchase CRV off of the open market and CRV stakers receive a vested reward similar to synthetixās staking rewards being locked for 1 year (vesting period could be voted upon or a boost applied if you agree to longer vesting). This wouldnt change LPs rewards being available immediately.
I believe buying CRV off of the open market and then redistributing that CRV to CRV stakers (which wouldnāt have to be LPs) could provide incentive for new comers to Curve who donāt want to be LPs to lock up their CRV to earn rewards and help govern the protocol.
Note: CRV stakers = vote locking, not suggesting a new staking function
I donāt have an opinion on increasing trading fees or not. Depends on what might happen to total fees (laffer curve and all that).
I think directing 100% of admin fees is a bad idea. It sends a bad signal to LPs and to the broader crypto community. Some % of admin fees coming from trading fees is appropriate, but not 100%.
As a small CRV holder who locked for 4 years because heās interested in this grand governance experiment, Iāll say that this proposal made me laugh, because optically it looks like the people in charge came in, and one of the first orders of business is to profit maximize for themselves with no regard for any other stakeholders.
Iād say this kind of behavior goes against the reasons why many people got into crypto in the first place. I suspect it would also create negative sentiment in the wider community that would be hard to come back from.
Even if itās ultimately a marginal difference in APY for LPs right now, I think directing 100% of fees to governance participants is ultimately shortsighted.
If the āend gameā for Curve (once liquidity mining incentives have dried up or are significantly less profitable) is that its a safe place to park cash where you get better yield than your bank account, you get to āparticipateā in Defi and crypto but youāre not taking a lot of risk, then trading fees could make up a significant portion of the yield.
I think itās a bad idea to signal to LPs that Curve governanceās first priority is to enrich Curve governance participants at their expense. Come to think of it, increasing the trading fee to juice admin fees also signals to traders the same thing, although Iām more on the fence about that since Curve is the only game in town for stablecoin swaps currently.
I disagree, longterm veCRV holders should be rewarding for the risk they take and it would incentive more people to lockup CRV.
YFI is no different, YFI holders make money from fees yVault charges on top of Curve, why would veCRV holders not benefit in a similar way? Also LPs and veCRV holders are basically the same group of people, so why would LPs be mad?
Iām strongly against raising trading fees until there is substantial analysis about how fee changes will impact trading volume and fees earned. Without any due diligence, I canāt take that proposal seriously.
Iād be interested in a fee redistribution from LPs to veCRV holders though. Set admin fee to up to max allowable without migrating to new contracts (<= 50%) and without raising fee to traders. Since veCRV holders are almost certainly LPs, you would be redistributing yield from LPs that do not stake their CRV to LPs that do.
My support of this proposal (option 1) exists for the following reasons:
Currently, other than voting, the only benefit to holding veCRV currently is to get more CRV (in one way or another). This proposal would introduce real value to curve holders which can last for the long term and is not driven by speculation.
As others have mentioned, veCRV holders should have interest in driving further adoption of the protocol, so this proposal addresses that issue directly.
Curve is already (correct me if Iām wrong) the lowest fee, lowest slippage option for stablecoin trading by a large margin, so a relatively insignificant fee increase to support veCRV holders is both reasonable and unlikely to have a significant impact on trading activity.
Rewarding liquidity providers for their participation in the pools is still necessary though, so we should leave existing fee in place as before.