This RFC would like to gather feedback in regards to the increase of the governance fee from 10% to 20% to the Save vault.
As per MCCP 23, 24 and 25, we are focusing in increasing the treasury holdings while we develop the Metavaults, which we believe will drive long term, sustainable growth for the protocol. In that sense, another effort that we can make to build a strong treasury is to increase fees from 10% to 20%.
Considering the current share of mUSD in Convex (~50%), after an increase of 10pp in the fees, there would need to be an outflow of 20% of the current mUSD deposited in save to bring up the APY to the same level as before.
There’s no reason to assume that mUSD liquidity in Convex would get impacted, as for them the APY would remain the same.
Assuming a 3.8% APY for Save, coming from a 1% APY in Aave and a 2% APY from trading fees (last 30 days), if we increase the fees to 20%, Save APY would decrease to 3.6%.
If TVL decreased 20%, it would go back to the 3.8% levels.
This means that total circulating supply of mUSD would be reduced 10%.
Since our fees are double than before, even after this outflow of capital, we would still be making 80% more of revenues.
80% more of revenues.
mUSD supply might decrease 10%
It is suggested that the community comment on this RFC in the coming days, and bearing no significant opposition or change in ideation, we would move ahead with this RFC in the coming weeks and create a formal draft proposal on Github to be used for review.
@nesk is conscientious of maximizing TVL and is only proposing the 20% fee structure despite the fact that a 100% fee structure is the optimal fee at this moment.
I fully support.
My only additional comment is that the decrease in yield does not account for MTA rewards. Currently MTA rewards are 2.5% APR which would mean that mSave would not even decrease as much as is described in OP in order to achieve yield equilibrium.
I support this proposal. I think it has the elegant side effect that yield that wants to be maximized will most likely migrate away to our new Meta Vault product, further incentivizing sunsetting of our old legacy mStable product suite over time.
Captured fees from this will be used by the treasury to manage in the best interest of all ecosystem participants that hold a stake in mStable, so seems to be very aligned on this front as well.
Although incomplete, my initial simple model suggests that the optimal fee rate equals mUSD in Convex / Total mUSD. So it would require a greater than 60% draw down of mUSD in CVX for a 20% fee to be suboptimal (too high a fee).
However my initial model ignored MTA rewards and thus the draw down from CVX would likely need to be greater than 60% for a 20% fee to be suboptimal (too high a fee).
My current understanding is that the bribes were insufficient and that aligned interested parties were voting for the mUSD/3 Curve Pool. The treasury is currently examining a valuation of CVX acquisition in order to cement the mUSD/3 Curve Pool without bribes, but it is unlikely to prove undervalued enough relative to MTA to justify taking such a risk given the prioritization of v2.
I do see the concern, and I do think there is a lot of valid points here.
We should be able to align on a strategy for migrating all existing mUSD into our new and based Convex Meta Vault in the next 1 to 2 years, and I did see this as a very viable strategy to slow encourage migration.
Do you see a different or more elegant way to encourage a migration to our new product? I think the revenue is small enough for neither the staker nor depositor to care all too much about it anymore (we’re around 2-3% these days).
Our new and improved product seems to yield significantly more yield for less exposure, so maybe it’s an opportune time to discuss/shape this RFC into more of a migration strategy to a Meta Vault?
We could incentivize this move with a boosted vault or other means of staking incentives, or even just a POAP? What do you think about that?
Thanks for your comments, I see your points though I’m not sure if I agree:
Even after cutting MTA and liquidation rewards, APY is still higher than average for three reasons:
We make Aave and Compound deposits more efficient by distributing the APY only between Savers
We are still giving 0.8%-2.4% of MTA rewards (meaning that we end up giving up more value in MTA than what we are charging them)
We have trading fees, which are normally low but occasionally spike, which ends up driving the APY higher in the long term
Products in DeFi win because they are more efficient, and we are more efficient - even after increasing the fees. We are offering a 3x APY of DAI in Aave for a similar risk level. DeFi is a free market, and fees are part of that. I don’t agree that increasing them means milking our users, in fact I believe that they are currently milking us and that we should stop doing it. I also disagree that 20% is on the upper side of the market. I think that a very similar product to compare us with is Curve. They charge 50% of all trading fees. Yearn is charging 2/20, many protocols are charging withdrawal fees, etc.
This, on the other hand, is a very valid point, and I agree with it. However, the reason why I think we should still do it is because there will be times of spikes of APY (and maybe TVL as well) and we should be able to capitalise on that.
We make it actually less efficient, by having the extra step of minting mUSD first.
In the end, I think our cost didn’t change running this product to justify why we need to increase fees. Apart from some automated transactions, this is pretty hands-off for us.
I would love to keep mUSD Save as the easy savings account for DeFi. In the near term, we might be rethinking the role of mUSD and Save if we have a comparable Meta Vault product. Or we might rethink how mUSD could fit into the new Meta Vault centric ecosystem. This is what excites me, giving it more utility.
I see the points on both sides here. I don’t think we should be spending too much time worrying about increasing revenue from Save as the focus should be on building scalable new products that can increase revenue by orders of magnitude.
However, this seems like a pretty simple step that could be used to increase revenue in a small way while also increasing the incentive for users to shift to our new products.
Perhaps we should wait until after we have a comparable Metavaults product ready though and use this lever as part of a migration strategy. It won’t be great if users leave now due to a fee hike and deposit elsewhere, as they may not be willing to shift again.
Agree with @nesk that we are currently giving too much value to Save depositors, in that revenue doesn’t cover the value of the MTA given away and possibly doesn’t cover the gas costs of keeping the product running.
Considering we’re about to enact a tremendous increase in the cost of paying certain contributors, I definitely think this needs to be brought to a vote. No, it won’t make up the difference, but it will help in a small way.
The reason for this (IMO) is not only that market-wise the rates are really down, but also that sUSD is showing very good yields on Optimism thanks to the OP emissions, and people is withdrawing as much sUSD as possible.
We are currently focusing on the Meta Vaults, but with the Treasury DAO (cc @Jeshli) we’ve been crunching a strategy to improve the usage of mUSD. Until we solve this problem (at least partially) increasing the fees would be like shooting ourselves in the foot. So while I 100% believe that our product is too cheap, raising fees at this moment is probably not the smartest move.
Perfectly well said! Thank you for vouching for regular users (like me). mStable does not have a user base large enough to afford to lower Save’s APY more. Even with having a great APY, users are not coming in waves to deposit. If we milk users more, they will leave and go back to CeFi or some other DeFi protocol.