After strong support in the [Discussion] topic for this proposal, this topic formalises the proposal for review.
Summary:
Proposal to introduce an admin fee. This would split the current 0.04% trading fee between veCRV holders and liquidity providers.
This ensures all Curve stakeholders benefit from an increase in volume on Curve and it brings an additional valuable feature to being an active member of governance and CRV holder.
Abstract:
The Curve token (CRV) has a growing range of attractive properties when it is locked for veCRV, ranging from gauge boosts to protocol governance. Through these governance levers, these token holders influence the direction of the Curve protocol, which is an important responsibility for Curve’s long term success. This work should be financially rewarded and we propose to use the Admin fee feature in Curve for that.
Curve has the option to introduce an admin fee of up to 50% of the trading fee. This proposal is therefore to introduce a an admin fee that will flow to veCRV holders from the 0.04% trading fee. With most of the returns to liquidity providers coming from CRV, we expect liquidity providers to be unaffected by this.
Motivation:
Liquidity Providers: they provide capital for the pools and earn a yield on trading volume. They are currently earning additional incentives in the form of CRV distribution.
veCRV holders are CRV holders who decided to lock CRV to participate in the governance process. They govern the Curve protocol which manages over a billion USD in liquidity. They may also be Liquidity Providers.
To ensure there is no incentive misalignment, every participants should be incentivized to grow Curve. Practically speaking, this means maximising trading volume.
Liquidity providers should be compensated for their capital; which is why they would still earn 50% of the trading fee as well as CRV rewards. These participants are free to do whatever they want with their CRV.
veCRV holders, who have locked their CRV and are showing a long term commitment to the protocol, should be compensated for their good governance decisions to build Curve. By introducing an admin fee for veCRV holders, this ensures incentives are aligned and that these committed holders benefit from their governance.
Specification:
Introduce an admin fee.
The admin fee would then be directed to veCRV holders, a discussion with two options on how to do so will be added in the coming hours which will then also be voted on the new signalling tool.
Based on last week’s volume, 0.02% would currently represent around $4.1m per year.
Which pools and the amount will need to be discussed further before implementation.
Please note this is a signalling soft vote as implementation will need to be submitted with a fee for each pool on the actual DAO.
Implementation:
The steps will be:
Signalling vote on implementation of a new admin fee <== We are here
Signalling vote on how those fees should be distributed
Signalling vote on which pools will receive the admin fee
On-chain vote: Admin fee implementation on DAO
For:
Aligns interest across Curve stakeholders and adds additional incentive to own and lock CRV.
This could potentially reward CRV vote lockers significantly if enabled on all pools.
Based on last week volume, a 0.02% admin fee on trades would distribute over $4m per year in fees.
We will have the two other parts of this proposal in next couple of days.
Also please note, 50% admin fee (0.02% at the moment) is the maximum on existing pools. New pools will have the option of a 100% admin fee if this is where governance wants to go.
I’m a big fan of this proposal and I made a couple of posts in other threads that are advocating for basically what you describe here.
But for the sake of avoiding potential pitfalls in implementing this, I do have some questions worth thinking about:
How might a 50% admin fee affect liquidity on the protocol? Many LPs may not have the intention of locking CRV and participating in governance. They will see their yield cut in half, in addition to reduced CRV rewards.
What proportion of non-governance interested liquidity do we anticipate makes up Curve right now, and how much of it do we expect to leave Curve due to inadequate compensation?
How much liquidity could we tolerate losing before the affect of trading fees earned becomes a problem?
Could the introduction of fees to veCRV holders incentivize a separate group of non-LP stakeholders that negatively affects LPs in some way (ie. Reduced fee collection, governance takeover)
I expect the addition of the admin fee will increase participation in governance overall, as well as giving an attractive value proposition to the CRV token, but it will almost certainly lead to some decline in liquidity. We should be prepared for how this may potentially undermine the main goal of incentivizing governance and accruing token value.
Some of the pools consist of lending tokens (Compound and Yearn) for which on most days the yield is predominantly from the underlying lending tokens. For other pools, it looks like all the yield is from trading fees. If this is correct, liquidity providers will see drastic differences in yield from a 50% administrative fee depending on the type of pool.
However, most profits come from rewards, underlying asset lending, and crv farming. Thus this by no means “cuts in half” profits of LPs. infact all LPs have a MUCH larger return now that governance coins are mineable and governance taking fees was the idea from the get go. Thus all parties should be in a happy state right now.
Fees reducing too much profits should only really come into play if crv farming gives little to no reward. If this was the case, we might try to increase value in crv to make it profitable again, rather than resetting fees back to pre-dao levels.
tldr: This was the idea from the start. All parties are doing great right now. Win-win situation.
I actually think that the admin fee is beneficial for LPs as well. The main income on pools is CRV at the moment. Giving it intrinsic value through veCRV dividends via admin fees will benefit CRV price. Therefore LPs will earn more regardless if they are interested in selling or locking CRV.
Does this mean that a 50% administrative fee on a non-lending pool will cut the yield in half? But on a lending pool a 50% administrative fee will have a less significant effect on the yield?
That is correct, although all pools receive CRV which will now be more interesting and should be worth more so I think the trading APY will go down, but the CRV APY will go up.
Binance now offers a swap pool with 0.04% admin fee. Then we have swerve.fi. I really start to question the merit of a 50% fee increase. I don’t think now is the time to pat ourselves on the shoulder. If anything we should reduce the fee to be more competitive.
I am of the opinion that to increase the admin fee is to short change ourselves. It will come at a cost of Curve’s longevity.
The proposal isn’t to increase trading fees. It’s to redirect up to 50% of fees earned from LPs to veCRV holders. Basically this is an incentive mechanism to get more LPs to lock their CRV and participate in governance instead of dumping immediately
I see. I did not understand the proposal details correctly. Since the title of the proposal was “Adding an admin fee…”, I interpreted it as an increase.
However, having said that, I am not sure if reducing the fee to the LPs by half is any better. If LPs are less incentivised to stick around, it will mean less liquid pools, which in turn makes Curve less attractive to traders. The profit has to come somewhere – it doesn’t matter which way we slice the pie.
Given the latest state of Defi, we need to make Curve even more competitive, not less.
If this proposal were about using a percentage of the admin fee to fund R&D, to implement an L2 solution, or to expand Curve’s functionality through acquisition, then I might be more open to it. But to pay ourselves because we have been doing such a good job a at governing? I don’t think that’s a good idea at all.
Incentive at the moment is to get CRV. This outweighs the trading fees by far. So everything that gives CRV intrinsic value is beneficial for all LP, because they earn more. Even if they don’t lock veCRV.
This aligns incentives between pools. We should all want (and benefit from) higher trade volume regardless of the pool. Volume is our key metric. The question is how to 10x it.
Fwiw, I support doing something so that CRV has some value.
It seems the biggest player in curve is yearn, and yearn’s business model is to dump CRV as fast as it’s earned (and they’re earning a lot of it). And so we have a falling CRV price.
yEarn actually has an incentive to lock CRV to participate in the gauge weight vote process and to earn the boost for its participants. It’s also not responsible for as much of the overall yield dumping as common sense might suggest.
