[Proposal] Set up a structure for long-term collaboration with Tempus

TL;DR at the end

What is Tempus?

Tempus is a fixed-rate protocol built on the Ethereum network. Tempus enables users to:

  • Earn a fixed yield on their yield-bearing tokens (e.g. stETH, cDAI).

  • Earn additional yield by depositing yield-bearing tokens to the various liquidity pools that are available on Tempus.

  • Speculate and obtain leverage on future yield.

Tempus has received a $50,000 grant from Balancer Grants DAO to build a custom AMM that makes it more efficient to trade tokens with a known correlation (adjusted for time). Tempus is going live on Ethereum Mainnet on Wednesday 15 December 2021.

Background

Recently, @Xeonus introduced a proposal to activate a “protocol fee” on Balancer which was subsequently approved by the community.

While this protocol fee does not immediately impact third-party pools, we wanted to discuss how this “protocol fee” could be implemented in respect of Tempus.

Protocol fees are normally collected as a percentage of the swap fee in the custom AMM deployed on Balancer. However, this would be counterintuitive for a variety of reasons:

  • Tempus is not a DEX, but a fixed-rate and future yield tokenization protocol where the AMM serves as a tool to indicate market implied yield.

  • Tempus has the ability to implement all different kinds of fees (deposit, redemption, early redemption, swap and performance fees). Swap fees (that will be set to 0% in the future, and replaced by other fees) represent a small part of the revenues and isn’t representative of usage of the protocol.

  • Tempus is not charging any protocol fees right now; that is why implementing an arbitrary protocol fee (whether as a swap fee in the AMM or otherwise) would hinder the adoption of the protocol and the bootstrapping of liquidity.

  • If we apply a protocol fee in respect of swap fees in the TempusAMM, these protocol fees would start accruing in the form of our newly created primitives, Principals and Yields. It would add a lot of administrative and technical overhead on both sides to monitor the maturity date of each Tempus pool, and promptly redeem them (otherwise they will start losing value) using the DAO’s 6-of-11 multisig.

In addition, it is worth noting that Tempus doesn’t benefit from Balancer’s features in the same way as other projects building on top of Balancer:

  • Tempus utilizes a custom version of the StableSwap implementation on Balancer (third-party pool) that uses a forked Vault, which doesn’t allow for any straight fee collection mechanism by Balancer DAO.

  • Tempus can’t tap into the liquidity of Balancer’s Vault, since Tempus is built on a single AMM that allows trading between Principals and Yields only. There is no pair involving a stablecoin (e.g. USDC) or the underlying (ETH). We have no plans in place to set up new trading pairs as they are not necessary due to our protocol design and doing so would only fragment liquidity.

  • Tempus doesn’t need its Principals and Yields to be tradable on Balancer’s frontend, as it is a closed system, and trading between these tokens requires access to our valuation tools, which only Tempus’ frontend can provide.

Proposal

We are of the opinion that in order to foster long-term collaboration between Tempus and Balancer, we need to put in place an alternative plan that takes into account what Tempus does, and better aligns the interests of Tempus and Balancer.

As such, we are proposing the following:

  • On launch, Tempus LPs will not pay protocol fees to Balancer DAO.

  • When Tempus begins to implement protocol fees (deposits, withdrawals etc.), in a pool that uses a TempusAMM deployed via Balancer’s StableSwap, Tempus will calculate 10% of the total fees accruing to Tempus Treasury / TEMP stakers in respect of that pool, and pay these to Balancer DAO in the form of TEMP tokens.

  • In exchange for this, Balancer will continue to support Tempus on an on-going basis, foster its integration into the Balancer Ecosystem, provide it with technical and marketing support, and treat the project on an equal footing with its other partners.

Why is this a better outcome than protocol fees for both parties involved?

  • It removes the complications of having to redeem Principals and Yields via the 6-of-11 multisig each time a Tempus series matures.

  • It aligns the long-term interests of Tempus and Balancer DAO as Balancer DAO will end up holding a small portion of TEMP and receive a corresponding amount of fees that’s reflective of our protocol usage.

  • It gives Tempus the flexibility to put its users first, by implementing alternative fee structures that don’t include a swap fee. In other words, it gives certainty to Balancer DAO that it will continue to receive revenues in the absence of swap fees in the TempusAMM. In this case, Balancer DAO can also act in the best interest of the Tempus users and Tempus will not receive pushback from Balancer DAO if we want to phase out swap fees.

  • It gives Balancer the ability to partner with and support Tempus in the long run, participate in governance and receive a share in its revenues using the newly accrued TEMP.

TL;DR:

  • Balancer DAO has activated a protocol fee in respect of their pools

  • It is counterintuitive for both Tempus and Balancer to pay and receive fees in this form, given Tempus is not a DEX but a complex fixed-rate protocol

  • When Tempus has fees (e.g. deposits, withdrawals, etc.) on a pool that uses a Balancer AMM, then 10% of the total fees would be calculated and Balancer DAO would be paid the equivalent in TEMP

  • The community needs to decide whether they will accept this proposal as an alternative fee structure

9 Likes

I look forward to discussing this here. For those who aren’t familiar, you can find more information about Tempus here.

4 Likes

I really like this. Tempus knows the most effective method of capturing fees on their own products so it makes perfect sense for BalancerDAO to do the same thing. Tempus handling everything and sending us TEMP makes it very easy and helps us build a stake in the long term success of Tempus. Plus we can earn a yield on our TEMP that scales as usage of their product grows.

Thank you for taking the time and initiative to present this here. It sets a great standard for future Balancer partners to present similar proposals I think :slight_smile:

6 Likes
  • In Favor
  • Against (please reply why)

0 voters

Totally in favor. Great idea and I’m looking forward in seeing this model implemented

3 Likes

I am also in favor. Absolutely makes sense in this kind of setup.

1 Like

Thanks for the write up @garai
In favor of this proposal and hope to see it implemented asap :pray:
Also echoing Solar’s comment, I think this will set a great precedent towards future projects building with Balancer. DAOs are evolving and the discussion is open to all participants!

3 Likes

I really liked the proposal and I am in favor of it, I believe that it would benefit both parties and could establish a long-term partnership.

3 Likes

Thanks for this @garai, it does make a lot of sense and I’m curious to see what BAL governance thinks on a snapshot vote!

2 Likes

https://vote.balancer.fi/#/proposal/0xdc2fe80b988f091a29be8d4a7f46b2717ff12f7d08b089940eb3dbdbce6c3924

2 Likes