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cp title authors contributors proposal-type date-proposed date-modified date-ended status
28
Centrifuge Protocol Fees
Governance and Coordination Group (ImdioR, Rhano)
CP4 technical
2023-01-19
2024-02-05
2023-02-15
passed

Short Summary

Implement protocol fees on Pools on Centrifuge Chain

High-level objective

This proposal, if passed, will add protocol fees on Centrifuge Chain in order to ensure self-sustainability of the protocol

Background

Over the past three years, Centrifuge has been able to achieve significant goals, not only in terms of development, integration, and partnerships but also financially in DeFi. Until now Centrifuge didn’t accrue any fee from Issuers or Investors for using the Tinlake application.

That is why the development and implementation of protocol fees is an expected and considered step that will ensure the independence and protection of the protocol from external economic shocks, ensuring stable, regular, and predictable development.

The only way to be able to run a successful Protocol is the availability to fund future development and innovation of the protocol. Even a small protocol fee would provide significant funding to help cover general protocol expenses.

There have been several discussions among community members regarding introducing protocol fees in the past. Based on the feedback received on this topic, the Governance and Coordination group would like to propose the following proposal to the Community.

Detailed description of the proposal

The main objective of protocol fees is to provide an economic incentive and to help ensure that the protocol can function smoothly and efficiently during any external economic situation.

In the initial phase, fees will simply be accrued into the on-chain treasury. There are many possibilities and opportunities to pursue once fees accumulate. The funds in the treasury will typically be used to finance the development and maintenance of the protocol, and expansion as well, as to support other activities that are deemed to be in the best interests of the protocol and its users.

Given the volatility of native token currencies in general, we would like to propose the protocol fee currency be in a stablecoin (the currency of the Pool on Cent Chain) in order to avoid developing complex solutions for cross-exchange.

  • The fee is defined as a % of the valuation of all loans in the pool. It is set on each pool during deployment and can only be changed by governance.
  • The protocol fees are accrued every second on the portfolio valuation and paid by the Issuer on any repayment transaction into an on-chain treasury, which is a special account controlled by governance (i.e. the token holders).

The formula for calculation of the Protocol Fees, based on the valuation of all loans in the pool:

  • ExpectedFEE = V*(1 + (i/n))^(n*t)

where V = Valuation of Loan in Pool Currency, i = protocol fee value in decimal, t = Time --> Loan duration in years = (Days/365), n = seconds per year.

Example:

V = 10, 000,000 Pool Currency, i = 0.004, Repayment in 120 days → t= (120/365) = 0,3287671232876712, n=31536000

ExpectedFEE = 10,000,000*(1 + (0.004/31536000))^(31536000*0,3287671232876712) = 10,013,159.33967964 POOL CURRENCY

With this regard, we propose to the DAO to introduce and set specific fees for these types of pools:

Closed(Private) Pools

  • Private Credit & Securities fees 0.15%
  • Public Securities & Equities fees 0.02%

Open Pools

  • Private Credit & Securities fees 0.4%
  • Public Securities & Equities fees 0.075%

Portfolio(Prime) Pools fees:

  • 0.35% p.a. on assets in Prime up to $50M ( < $ 50,000,000)
  • 0.2% p.a. on assets in Prime between $50M ( > $ 50,000,000) and $100M ( < $ 100,000,000)
  • 0.1% p.a. on assets in Prime above $100M ( > $ 100,000,000)

The fee will be set for each pool on pool creation on-chain.

Change or improvement

  1. Extend the Centrifuge Protocol to start collecting protocol fees on Centrifuge Chain as described above
  2. Activate Protocol Fees on Centrifuge Chain and set specific fees for the valuation of all loans in the pool for different types of pools
  3. Set the fee for each pool on pool creation

Alignment to the mission of Centrifuge DAO

We believe that the implementation of Protocol Fees is one of the most important functions for the future of the Protocol. The fees paid in stable tokens will ensure the ongoing development and maintenance of the protocol and will guarantee future development and innovation of the Protocol, as well as support other activities that are deemed to be in the best interest of the protocol and token holders.

Link to the RFC on the Forum: https://gov.centrifuge.io/t/rfc-centrifuge-protocol-fees/5043

Link to the Opensquare Snapshot: https://voting.opensquare.io/space/centrifuge/proposal/QmeHGuzxH1GxEopM4ycYa6i6SyFbV4hFwpywT6CR8T5gg7

This proposal was modified: