With CIP#7 (50% admin fee on existing trading fees) receiving a lot of support, we would like to propose two different options to distribute those fees.
It’s possible more options will be proposed down the line and this discussion is just a starting point.
If there is sufficient support for one of those two options, a DAO vote will created and will be subsequently implemented once governance decides which pools should have the admin fees implemented.
The steps will be:
Signalling vote on implementation of a new admin fee
Signalling vote on how those fees should be distributed <== We are here
Signalling vote on which pools will receive the admin fee
On-chain vote: Admin fee implementation on DAO
Option 1: Buy CRV on the open market and veCRV holders would receive CRV
Option 2: The fees should be directed to a Curve pool and veCRV holders would claim LP tokens
It was also suggested those fees could be claimed when a veCRV casts their vote which would add incentives to participate in governance proposals
I support Option 2 because “Buy CRV on the open market” sounds a lot like many of the meme coins which are flying around right now. I would like to think that CRV is not trying to be one of them after this proposal!
Perhaps I am thinking too traditionally about this, but these rewards should be treated similar to dividends. It will reduce unnecessary speculation, and people who feel long on CRV can still buy it after claiming from the LP tokens, and they can do it on their own terms (ex. as a limit order). Stakeholders would get a direct, relatively steady stream of income without having to act using option 2.
Interesting options! Could the team please weigh in with their thoughts? What are the technical pros and cons? Which option has the lowest transaction costs? Are there other options we haven’t considered yet (put the fees in an AMM)?
We like the CRV option as it should help sustain CRV as well as be quite cost efficient and relatively simple to implement. Focus right now is on the new pools being discussed so I believe most of the development time is focused on that.
We have more sophisticated ideas but they would be proposed later on. One of them would be the AMM option where we could for example take the CRV and put it on Uniswap to generate more fees or something like that.
Alternatively, paying out in LP tokens doesn’t involve the redemption and trade processes.
On the other hand, I don’t really want to receive LP pool tokens for pools I’m not interested in. If the CRV solution is simplest, I’m ok with it. Actually it probably is the best way to combine the value of all the different fee tokens into a single token. I’m struggling with it a bit because I like the idea of a traditional dividend paid in a stable currency, but actually paying in CRV is probably the choice that makes the most sense (since there will be new pools in the future and no one wants their fee gains denominated in dozens of pool tokens)
Buying CRVs and distribute it sounds like a dangerous proposition to me. From where will we buy the CRVs? On an open exchange, or perhaps on Uniswap or other public platforms? Will it be an open operation, or an opaque one? If it is an open operation, then it will likely be front run by bots or other traders. If it is opaque, perhaps in a dark pool, then how can we be sure that it will be fair and honest?
I strongly recommend everyone to reconsider it.
I imagine it would rely on a dex aggregator like 1inch to get the best price. Good point about a front run situation, maybe if it’s designed so anyone can call the function to trade veCRV fees at any time, it avoids possible attempts at market manipulation?
I just thought of an alternative to CRV payments, but it’s more complicated and I don’t know if it could work like I imagine.
It would need a meta pool that consists of all Curve pool tokens. Whenever admin earns fees, the pool token from which the fee was derived is allocated proportionally to all veCRV holders. veCRV holders can signal which pool they want to receive fees in. Say I want to only earn fees denominated in y pool tokens but I’ll be earning fees in sUSD, sBTC, PAX etc. Since I signal that I want only y tokens, the contract will periodically convert all my other pool tokens into y pool token. I hope there would be a gas advantage to automate these trades by batching every veCRV holder’s signal as like a single weekly or monthly transaction.
I don’t agree with the opinion that payouts directly in CRV support token value more than a more traditional dividend. The fact that CRV is an income producing asset is valuable in itself, and I anticipate the market will price it for its earning potential. This alternative of paying in LP tokens has the added benefit of supporting the growth of liquidity on Curve, since regular payouts in CRV also mean regular liquidity withdrawals from the pools. As an investor in Curve, I also like receiving a predictable return in my preferred stable token that I can automatically use to compound my yield and earn additional CRV as an LP. I’m starting to like the idea of this the more I think about it. It’s like a choose your own adventure dividend
I think the admin fee should stay within the pool where it is generated. If a pool produces higher fees in proportion to it’s liquidity (usually if liquidity within the pool is low) then this might lead to more liquidity in pools which generate higher fees/have lower overall liquidity.
Most people are both veCRV holders and liquidity providers, so you could be a LP in the PAX pool and own some veCRV. The admin fee (generated by the PAX pool) would then be distributed to you based on the fact that the majority of your liquidity is provided to the PAX pool and then based on your overall amount of veCRV.
This system would be a little more complex compared to simply distributing to all veCRV owners but would add a balancing function regarding the differences in fee generation between the different pools.
I disagree. Fees to veCRV holders should be distributed evenly. A lot of veCRV holders probably won’t be LPs, and I think they should have an incentive to own CRV. It widens the category of investors. I think veCRV should be a representation of all combined pools to better incentivize the governance to support the overall Curve ecosystem instead of just the pool they participate in.
Would be kind of interesting to see how many veCRV holders are not LPs. Personally I don’t think it will be many, there might be a lot of CRV holders, who speculate on the token price without vote-locking their CRVs.
In the end, you will receive the admin fee anyway if you are a veCRV holder.
One additional idea:
You could even go as far and distribute the admin fee across all veCRV holders evenly and then add a bonus to LPs who provide liquidity in the pools that generate the most fees.
I can think about other systems I’ve seen so far :
Funds are kept in a vault “as is” (collected ETH are kept in ETH, collected LINK are kept as LINK). Funds are distributed on a voluntary basis : An user can burn their governance tokens are will receive part of the vault funds proportionally to the amount of token burned (ratio vs total supply). I think that’s the model of Monolith but not entirely sure.
Kyber wants (or used to want) to have 3 destinations for fee collection : Buy & burn KNC tokens, distribution of fees to KNC holders, distribution of fees to Liquidity Providers (incentive). Each of those 3 channels could be adjusted in terms of total % of the fees collected. For Curve, the equivalent would be to have 3 parameters for [% LP admin fee distribution, % veCRV holders admin fee distribution, % CRV buy & burn fee distribution] where the total should be 100. I actually like this model because it gives space for experimentation (and that’s what we are doing here).
In the current situation, it looks like the first parameter has been set to 50% and that we are wondering about [50, 50, 0] or [50, 0, 50] whereas I don’t see why [50, 25, 25] could not be an option (meaning adopting both options of this poll instead of having to choose).
Of course it would mean a more complex system. It could be even more complex if we cannot decide between pure veCRV holders CRV distribution vs. CRV burning and adopt both at the same time.
In the end, if we want something radically simple, and we want a distribution-based model*, then Option 2 seems to be the way to go.
Cause there is no mention of keeping the fee in some sort of fund/vault that could be used/invested/distributed only on DAO decision.
many founder tokens are locked up and don’t provide capital, so we literally take the LP fees and distribute it back to founders/investors? This does not make sense to me at this point. I didn’t think this through myself before i have supported it, i am prolly not the only one, but in general we should stop rushing these votes…
True, I did not consider that part. I would be in favour of coupling it to the actual pool and it’s fees where you are providing liquidity to, in this case (but still dependent on the amount of veCRV you are holding at the same time).
This is a great idea, it leaves options open in the future to tweak the tokenomics. I’d support a solution that includes 3 parameters for fee collection, so long as only 2 methods are active in the beginning. I wouldn’t want to over complicate it in the beginning, but allow adjustments if it becomes necessary.
I’m still on the fence whether I support LP token or CRV payouts to veCRV holders, and would probably get behind either decision unless someone has a really good point about why one solution is seriously flawed