[Discussion] Introduction of an Admin Fee to Incentivise Protocol Governance

Proposals
#1

This proposition is a follow-up from the initial proposal CIP#4 from Rewkang which was suggesting to introduce a 100% admin fee and 0% swap fee. This proved to be technically challenging, hence the tweaked proposal here.

Summary:

The introduction of a 0.02% admin fee for governance participants on top of the existing 0.04% swap fee for liquidity providers ensures that all Curve stakeholders are incentivised towards maximising volume that routes through Curve and it brings an additional valuable feature to the CRV token.

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. With these properties, token holders can influence the direction of the protocol as well as how capital flows within Curve, which has a clear financial value and make CRV attractive for those that can benefit from influencing the protocol.

Committed CRV holders who lock their token to mint veCRV have the protocol’s best interest at heart and must be incentivized to guide the protocol towards growth, which includes directing liquidity to the right pools, incentivising the right integrations and mechanics, et cetera.

If veCRV holders are successful, the trading volume on Curve will continue to grow. The Curve pool Liquidity Providers stand to benefit from this growth of trading volume, as they capture trading fees that are currently set at 0.04%.

Curve has the option to add an admin fee on top of the trading fee. This proposal is to add a 0.02% admin fee that will flow to veCRV holders on the top of the 0.04% trading to ensure every key Curve stakeholders benefit from more trading and therefore are incentivised to make decisions towards that goal.

Motivation:

  1. Liquidity Providers, who provide liquidity in the Curve protocol, want to earn more fees which comes from more trading volume.
  2. veCRV holders, who govern a protocol that manages over a billion USD in liquidity, want to earn more fees which comes from more trading volume.
  3. Every participants are incentivized to maximise trading volume going through Curve, as Liquidity providers in aggregate earn 0.04% per swap and veCRV holders in aggregate earn 0.02% per swap.
  4. Liquidity providers are compensated for their capital ; and veCRV holders are compensated for their good governance decisions to build Curve.

Specification:

The admin fee should be distributed directly to veCRV holders pro-rata of their veCRV balance, as veCRV holders have a clear commitment to the protocol as they have locked their CRV for an extended period of time.

For:

Aligns interest across Curve stakeholders and adds additional incentive to lock CRV.

Against:

Increases trading fees from 0.04% to 0.04% + 0.02% = 0.06%.

  • In favour of 0.02% Admin Fee
  • In favour of a different Admin Fee
  • Against introduction of Admin fee

0 voters

5 Likes
CIP#7 - Add an Admin Fee to be distributed to veCRV holders
#2

The way the pools are set up is:

  • You set the total trading fee;
  • You set admin fee - what % of total trading fee goes to admin.

So this proposal basically wants fee = 0.06%, admin_fee = 33% (or thereabouts).

Not necessarily you have higher total fees collected when you set fee = 0.06%.

Why? Imagine this. You set fee = 10%. There will be 0 volume b/c the spread will be 20%, so the total fees will be 0. However if fee = 0%, you still have total fees = 0.

So there must be some optimum. Maybe it makes sense to reoptimize fee, but my gut feeling is that total fee 0.04% -> 0.06% won’t make an improvement.

Admin fee being 1/3 of all fees is something to consider though.

6 Likes
#3

yes this is much better than redeploying pools. im all for this.