You bring up fair points. I would like to hear how those should be addressed. You assume that there is a net negative impact, so please elaborate what your assumptions are based on?
I see some discrepancy regarding partnerships although until now partners for example provide incentives on our protocol for what in exchange? What aspect of the protocol fee does change that? We provide a „protocol as a service“ so to speak. Only fair to get a fee. Anything else is not a sustainable business model long-term IMO.
As far as our partners, I would present this as an optional “opt-in” at this stage. We can offer fee sharing (50/50) if they are interested in taking part in the protocol fee. Most of them are at very early stages so it probably isn’t worth their time or ours to charge the fee on their activity. This can actually be a selling point to future partners in my opinion - immunity from paying the fee until your activity grows large enough to make it worthwhile, then share in the revenue with us.
I disagree about the valuation stuff but since that’s purely subjective, not much to say. Earning something has to be better than earning nothing in exchange for printing 145k BAL every week in my mind.
In terms of a net negative impact, what I mean is if e.g. BAL price decreases by more than anything we make from fee revenue. Overall that could have a net reductive impact on the treasury. As @DavisRamsey has said however, that’s purely speculative. It all depends on if us being seen to earn very low income changes the way that the market values BAL tokens, vs. at the moment when they’re valued based on some kind of future potential because there is no income.
With regards to partners, I’m referring to those building on Balancer like Element, Indexed, etc. IMO we need to work on some clear expectations if we’re going to enable the fee (this also ties into discussions with Element around BAL rewards for their pools). An optional opt-in to me seems a bit wishy washy, why revenue share with us rather than just implementing their own fee? What I want to avoid is setting the expectation that Balancer’s protocol level fee is separate to whatever applies to projects building on Balancer in some way.
At a minimum we probably need something clear and consistent in terms of how projects building on balancer are expected to implement the protocol level fee, otherwise we may end up with lots of difficult unexpected conversations in the future and no/little ability to generate revenue from Balancer’s core strategy of getting other projects to use Balancer as a base layer.
these projects all have their own token so very safe bet they will be extracting a fee somewhere. The technical details of how they could implement the protocol fee - I don’t have a clear answer to that. The main leverage we have for getting them to play ball is having the SOR see their pools, their pools on the UI, BAL rewards (while we control the process), stuff like that. If they do not care about those things, then we have no way to compel them to pay the fee afaik
I’m not sure how we can anticipate market reaction on the protocol fee activation. I would probably argue that the majority of selling pressure on the BAL token comes from LM incentives and lack of utility of the token.
I hardly doubt that this decision would impact in any meaningful way market sentiment toward the BAL token and Balancer.
I’m also not sure why other Protocols should stop building on top of Balancer if such a fee was implemented. We offer the most secure and battle-tested platform in the DeFi ecosystem. Are partners turning their back on us because we decided to make some necessary steps towards Protocol self-sustainability? please remember that current conditions are unsustainable (145k ballies p/w with zero income). This is a question of when, not if. The need to make Balancer viable in the longer term goes via protocol fee activation and a redesign of tokenomics.
Also, this activation has strong implications for the nascent DAO. The DAO is necessary to spark community engagement and further the development of the Balancer ecosystem.
The status quo would just prolong a state of stagnation.
The opinion that doing nothing is the wrong move doesn’t always hold and sometimes not taking action is the best action you can take because bad actions can also have (unforeseen)costs. Looking at what others do and feeling that you should do the same isn’t a valid argument. This wouldn’t be the case however if concrete examples of other treasury usages were applicable to Balancer, otherwise it is Argumentum ad populum.
Creating more bureaucracy by growing a treasury doesn’t guarantee improved competitiveness and could actually hurt if by doing so we have any negative side-effects with investors or partners without any immediate benefit.
It seems the decision to start collecting fees is seen as a trade-off between future opportunity cost since there have been no concrete immediate uses for the fees mentioned so far vs. potentially seeming less attractive to partners and investors. Instead of worrying about which hypothetical situation may or may not become true, why not just assume both worse-case scenarios and evaluate the options from there since they are both speculative anyways. We can ask what is more important in those scenarios, for example if we need to suddenly access some funds for some reason when we can’t or that we may accidentally reduce participation and confidence in the near term by partners and investors in the near term when competition is fierce.
If there is a clear need for funds such as sustainability issues, current devs lacking enough resources to complete their work, etc. then I believe it is very reasonable to consider introducing them especially if done in an intelligent way that can improve tokenomics and the perceived value of BAL. On the other hand if it makes the protocol any less attractive to partners or investors that also should not be simply waved away as something that cannot happen when we have had no input so far from existing partners at least in this forum so far. Either way I do not believe that taking action for the sake of it is justified here unless we have more information from partners, concrete ideas how it could improve tokenomics or clear and current or soon to be viable use-cases on what to do with the extra resources.
I would like to emphasize I think the conversation is important to have, and I am not trying to shut it down, just that it shouldn’t be plowed through without more detailed discussion on the pros/cons.
Thank you for your contribution @squidz. Risk management attempts to plan for all sorts of scenarios. You could look at worst case scenarios, so what if BAL went to $1 or $0.50, that would cause all sorts of problems in today’s framework. Nobody really knows what is going to happen, but let’s take a not so dramatic scenario that could play out over the next few years. We could keep the status quo where we keep printing BAL week over week which should last around 7 years. A long time seemingly, but what if BAL prices drops more or doesn’t appreciate as much as its non stable counterparts, we may have to increase emissions to keep APRs up to keep liquidity on the platform, so we run out of BAL a lot quicker than planned. Also you have to spend more BAL for any other administrative costs, unless you go into cost cutting exercises and nothing gets done.
Another point is around using BAL to fund ecosystem activity assuming prices stay stagnant. If we are put into a position where we start spending a good amount of BAL on top of LM we are only going to add to the selling pressure on BAL there already is. The goal should be to preserve as much BAL as we can for strategic activity in the future. At some point (probably years down the road) we should start to slow and ultimately end the LM program. LM should have a bootstrapping effect get liquidity on the platform, but it will never last forever. We should focus on developing the platform to increase volume and therefore increase fees for not only LPs but also the protocol itself. The treasury should should support the costs of the ecosystem with less volatile segments and yield earning portions that are structured to ensure a longer time horizon for Balancer.
The point about doing nothing is the wrong move earlier in the thread has to do with some of the points I made in this post. It is hard to truly know the exact right time to make this change. The ship seems pretty steady at the moment turning on this minimal fee (90% of swap fees still go to LPs) to help plan for the future and get some actual revenue from the great tools on Balancer seems okay to me. This is just my opinion on the topic and I could be wrong sure, but I believe there are good reasons to take this step.
As a general update, there is some development work to get the protocol fee to play nice with LBP’s. The Ballers have decided to wait until this is completed before sending this proposal to a vote on snapshot. The current timeline is middle of December but subject to change as always. In the interim, discussion can continue. Once everything is ready to go, the Gov Council will vote again and we go from there.
Balancer v2 imposes the possibility to activate the “protocol fee”. The protocol fee would collect a percentage of the pool fees and passively accumulate them over time. The fee can be set in a range between 0-50% of the pool fee. The protocol fee is currently set to 0%.
Question. It said 0% to 50% of the pool fees will be charged by Balancer from each pool. Would that be applied to all pools as flat rate ? Or will it be customised for each pool ?
If this proposal goes through, I think 1% to 5% of the pool fee is reasonable fees can be charged by Balancer. That’s just my opinion.
I agree with proposal to activate the protocol fee. It also raises the possibility (in conjunction with initiation of BAL staking) of revenue sharing with BAL holders, which allows competition with xSUSHI.
Well balanced proposal keep all most pro and cons in perspective. I think the protocol fee would boost growth with revenue but I’ll leave it for the experts to assess…