Fee sharing distribution and Performance fee update

Author

Treasury League

Summary

A proposal to update the fees distribution policy:

  • Stakers from 50% → 25%
  • Rebalancer from 30% → 15%
  • DAO Treasury from 20% → 60%

and thus increase the current performance fee on PYTs (from 10% to 15%)

Rationale

Before digging into the specs, it can be helpful to share some broader concepts about rewards distribution:

Point 1: The goal of a DAO is to maximise long-term token holder value.

Point 2: Point 1 suggests that each dollar a protocol owns or receives as revenue should be allocated to its most profitable use. Options typically include saving the money in the treasury, reinvesting it into growth or new products, or sharing it with token holders via token rewards.

We recommend to re-think the initial weights of the protocol fees distribution, decided more than 1 year ago. Buybacks and fee distribution do contribute to the value of the token, but we should remember that the main value creation is driven by the protocol cash flows. These cash flows are directly tied to the protocol’s user base, the TVL, and its product suite. Investing into Leagues then means funding future user base expansion, partnership creation, and product development that will ultimately increase cash flows for the DAO.

Capital Allocation

Capital allocation is the process of deploying a firm’s financial resources to maximize returns for stakeholders.

Organizations typically have five primary options to allocate capital: reinvesting in operations, issuing dividends, repurchasing stock, paying down debt, and acquiring other businesses.

While Idle DAO has always been debt-free, until today, we have explored mainly three of these opportunities: $IDLE buybacks, fees re-distribution and Leagues operations funding.
The approach used by Idle and by many other DeFi protocols goes against a rational capital allocation, though. Why rewarding token holders now when that capital can earn far higher returns being reinvested into the business? This is especially true for protocols in high-growth industries where the potential returns on capital can be enormous if a firm succeeds in its market.

That said, we suggest a change in the current Performance fee and in the Fee sharing distribution: the current fee distribution policy and the performance fee are a suboptimal solution given the Idle DAO’s stage. We would instead promote a more prominent use of fees toward internal investment in operations. Hence, the proposal will rely on two actions:

  1. Increase the performance fee on PYTs from 10% to 15%
  2. Update the fee share split increasing the share flowing to the DAO Treasury

Performance fee

Idle DAO is currently charging a 10% performance fee on its two strategies:

  • Best Yield: 10% performance fees on gains at funds redeem
  • Perpetual Yield Tranches: 10% performance fees on gains at funds redeem as well as at every harvest.

A simple summary analysis of the DeFi fees charged by projects similar to Idle shows that our protocol positions itself among the most economical in the market. Assuming an underlying APY of 10% we computed the net fees (as a sum of management, withdrawal and performance fees) charged by different DeFi protocols. Out of 15 DeFi protocols, the majority charge fees higher than 2%. While our Best Yield and Perpetual Yield Tranches currently ask for just 1%.

DeFi fees overview

Idle DAO product suite isn’t charging any management fee or withdrawal fee at the current time. This decision was taken to limit the barriers to entry for new LPs, ease the integration and maintain the composability of our product suite. Idle’s approach hasn’t changed and we won’t propose adding any additional fee besides the performance one in place.

What has changed instead are the market conditions. Due to the current bear market, the present size of the performance fee and its distribution policy are no more able to sustain Idle DAO’s growth.

We have modelled three scenarios based on current metrics to better understand how a shift from 10% to 15% in the performance fee of PYTs could positively affect Idle’s returns. Ceteris paribus, we see that a 5% increase in the performance fee could easily lead to a 20% increase in the revenues generated.

image

It’s important to notice that the Future scenario has been thought of in a very conservative way. The TVL for example has been kept constant between the first two scenarios, while the main goal of Idle DAO is to grow it.

The third scenario shows a stunning increase in Idle DAO profit of more than 260%. This will be achievable when the Idle BY strategy will start deploying its liquidity in some of the senior PYTs pools. In this way, our product suite will be able to offer leading APYs to its users and at the same time increase its returns by leveraging fully its product suite. We do expect to see an increase in the average APY thanks to new integrations in the pipeline that will provide steady higher yields. The TVL should be affected accordingly.

Fees distribution

Since January 2021, Idle is distributing $IDLE rewards to stakers with IIP-10. Based on @8bitporkchop’s work on $IDLE staking, the protocol fees have been split as follows

  • 50% to Idle’s stakers
  • 30% to the Idle’s rebalancer
  • 10% to the Fee Treasury
  • 10% to the Smart Treasury

With IIP-18 of January 2022, Idle DAO voted to deprecate Idle Smart Treasury and increase the percentage of fees flowing to the Fee Treasury. The January 2022 split currently in place is

  • 50% to Idle’s stakers
  • 30% to Idle’s rebalancer
  • 20% to the DAO Treasury

We suggest updating the current fee sharing to the following tiers

image

  • Stakers from 50% to 25% - IDLE stakers will continue to be eligible to receive part of the fees generated by the protocol to reward their long-term commitment in supporting Idle DAO’s growth.
  • Rebalancer from 30% to 15% - The rebalancer contract is responsible to cover for gas costs related to the harvests and the rebalances of our product suite. It has a minimum threshold of 1 ETH. Currently, it holds 5 ETH. Idle Leagues will set up a monitoring system and in the case that funds go below the minimum threshold they will promptly top up the balance.
  • DAO Treasury from 20% to 60% - The DAO Treasury is the primary source of operational liquidity to sustain protocol scalability and fund growth. For this reason, it’s essential to guarantee a stable source of funding to it.

The summary table on the new tiers shows that stakers will be minimally affected by the change in the fees distribution policy. On the contrary, in the case of a future scenario where the Best Yield strategy will start deploying liquidity into Perpetual Yield Tranches, stakers will be able to increase their rewards vs the current situation.

We can see how an increase in the performance fee of Idle DAO and a change in its fees distribution policy could favourably affect the capacity of Leagues to self-sustain their operations. This event should be positively welcomed because it could let the DAO increase its treasury size, making it more resilient to market shocks, as well as attract more talented contributors that would help scale Idle DAO’s business.

References

Next steps

We would like to gather the sentiment of Idle DAO toward the update of the fee distribution split. The aim of the updates is to create a more stable and successful protocol and DAO.

This post will be open for discussion and in about 3 days, if there are no objections, we will proceed with the Temperature Check.

4 Likes

Thanks for the detailed post.

It’s worth mentioning that currently fees from PTYs are directly sent to the treasury multisig address as the current FeeCollector cannot directly handle staked tranche tokens. For this reason a grant for developing a new and updated fee collector was set up [GRANT] RFP-11: Upgrade Fee Collector and completed by @nikolas-con. In this way fees from PYTs (after the fee collector upgrade has been approved and included in a proposal) can be added as a source for the new proposed fee split.

Regarding this

in general I’m in favor of increasing the share reserved for the DAO Treasury and I think that having a percentage directly sent to the treasury multisig for the operations (maybe 20%-30% out of the total) can speed up the leagues mgmt vs having to create a new IIP each time there is low budget (which is relatively frequent atm)

1 Like

Hey @william, thanks for your input.

I have made some calculus with the current TVL/APYs and to sufficiently fund Leagues we would need to increase the % of fees transferred directly to the TL multisig:

  • 40% would make us break even (scenarios with double fees coming from BY into PYTs) at the current burn rate ($12k in stablecoins)
  • 50% would make us break even (scenarios with double fees coming from BY into PYTs) with a budget slightly higher than the current burn rate ($15k instead of $12k) to cover for additional stablecoins spending.

I would suggest starting at one of these 2 levels (at least to start, until we increase a bit TL treasury). In the future, we can decrease the %.

2 Likes

I am not convinced of this proposal as it cuts profits of our users and will make the idle protocol less attractive to yield farm. Additionally the loss in TVL (performance fees) should be considered due to users who might leave to invest in other protocols. In this market cycle yields are generally not soo appealing anymore, by adding additional fees we might push investors away to evaluate other opportunities.
I see the points / benefits mentioned for idles sustainability but would like to see other proposals or ways to do so without targeting Idle strategy users/investors.

3 Likes

Totally with @Salome on this one.
Just feels like investors / token holders getting shafted yet again.

2 Likes

So, you are proposing to put through a 50% increase in performance fees and slash long term investors by 50% to fill the coffers of the treasury…

So for users who committed to supporting the protocol long term, and staked for 4 years you are now slashing rewards by 50% once we are locked?

All in all a top way to disenfranchise the remaining community.

2 Likes

Ok. So lets get this straight. This proposals to cut staking rewards to send to the treasury. Bullshit .
Do not touch my rewards. Cut your salaries.
This would not be happening if the idle management actually listened and developed a stronger community, holder count , shiller network. Trading
For two years we tried and top holders tried to encourage you to get marketing but everything was either far far to slow or not on the plan or not how you " worked "
Well the plan is falling to shit and a new website means shit if noone sees it.

Remove the dead wood

Cut your own salaries for 6 months and sacrifice like we all did watching this go from $20 to nothing because you all knew better

Listen the the few members you have left, market , call and influencer contacts and start buidling some dam awrness and hype.

3 Likes

Yas. That’s why this is a problem.

The team didn’t capitalise on the bull,

didn’t build a runway, didn’t grow TVL

didn’t build the community to sustain a reasonable price

and now don’t have funds so are trying to fund development by changing the goalposts on stakers who signed up for 4 years based on 50% revenue share.

Not impressed.

3 Likes

Generate funds
Well lets see how much they are paying themselves ?
Put some of that money towards legitimate crypto marketing
Lets actually break the failed system and pay for wide spread marketing and education. Pod casts , interviews ama because even this terrible idea will fail if nothing changes dramatically

3 Likes

@Biaf next time try to come up with ideas that are not based on fail Tokenomics ideas from 2018.

You are very well paid to be this lazy. Catch up with research.

4 Likes

So for the past year
The team has been given opportunities to do AMA. Utilise big names and YouTubers to build a community and awarness but you refused ?
Well I would highly recommend you accept your failing in this area and start trying to claw your way back out by actually listening outside your thought process

2 Likes

Nice to see people after many months away! Welcome back.

Honestly, I’m not sure how do you all think that a DAO can grow or simply paying existing contibutors without money. I hope do you realize that, with the current fee distribution/fee level, we cannot even pay 12k$ per month in stables. And this is with 4 core people subsidized by Idle Labs. Is this sustainable? NO.
With no contributors → stakers get 0 as the protocol is dead
I’ll give your some more time to re-read the hard numbers.

The increase in perf fee is only for PYTs, not the Best Yield as this would change the amount of fees the DAO already owns from users and it’s not good. Avg apr for PYTs are way higher than the one for Best yield.

Firstly Passive aggressive remarks are imature
Secondly, you need to have some self reflection as to why people walked away or kept quiet. It is because the team constantly ignored the community and advice.
Advice that would of prevented this issue.
And people can only bang their head agains a wall so many times

You severely contradict yourself in logic.
You question how a DAO can grow witnout money.
Well we have been telling you for years that to grow you need a community ( one you ignored ) and pay for decent marketing ( something you refused )
So instead of scrambling to buy 8 months why not actual get working on building the community, generate trading , increasing tvl , offer partnerships, offer incentivesed stakes for higher parties
You severly have severe internal issues and whatever you are doing is not working.
I strongly advise you sit down with the four whales you have left and for once take their advice

And with all respect
How about we hear from matteo
Or do devs now run all decisions ?

If someone has been absent from community work it wasn’t the former ambassadors.

Btw, in May I was driving next door to all you guys in Italy. Took 2 days to meet and talk biz.

No one was interested.

1 Like

I understand that some members prefer salaries in stablecoins. However hopefully they also joined the DAO for the experience that it represents not only the salary. If IRL is unpredictable, then crypto even more so. Idle created it’s own token for this reason, otherwise there would be no need. The DAO discussed Treasury diversification and alternative rewards system for a long time.

Contributors that believe in the project will keep motivated and push the project forward. Not because of salaries and even after life gets difficult.

Contributors need exposure to Idle tokens.
All this users here who raise their voice care about the project because they are heavily exposed to the token. Skin in the game works…
A minimum of 50% of the salaries can be paid in IDLE tokens (90-days moving average) for example for a certain time period.

2 Likes

First @Junglekai that’s your perception.
Second I don’t think so.
Third, I don’t think so neither, money in this world is still needed, contributors don’t get paid by Vitalik himself yet, rebalances still needs funds for keeping the protocol alive, funds for deploying, funds for infrastructure, and so on. But, I’m only ‘a dev’, what should I know? Probably @Junglekai you have some more deep insights

@unicorn not sure what you’re talking about actually

@salome so do you expect to work full time for no salary? League members, as you already know, are already getting 50% of the salary in IDLE tokens (and this is depleting the ecosystem fund pretty fast btw given the current market condition)

Ask @Davide @Teo then.

I did not mention that anyone should work for free, but that it helps to have skin in the game! Currently, it’s up to the contributor to choose to get paid in Idle tokens or USDC there is no official rule some choose 100% USDC some 50/50 others IDLE only.

My concern is mainly that the proposed solution will help short term but does not fix the current issues long term. We need to explore additional opportunities to remain sustainable.

2 Likes

I’m disappointed about how this thread is revolving around deconstructive comments and attacks on Leagues members, rather than proposing alternative ideas. Honestly, if this keeps up, we won’t see people trying to innovate in this DAO; all we will see are community members constantly trying to attack each other and break each other down. If you want to let this become the status quo, why would anyone try to build something here?

Considerate and constructive engagement is incredibly important. Just because we are in a decentralized, online environment does not mean social engagement rules are no longer observed. It is paramount to be mindful and always remember to never dehumanise DAOs or the people within. It’s the humans that make this space, it’s the humans that maintain it and will evolve it.

The human component is exactly the reason for this proposal, as we all want to keep maintaining and evolving the protocol and DAO. Are we going to do that by cutting the only arms of the DAO working every day to create value for tokenholders?

As a staker, I partly understand the reaction, but we need, as a DAO, to go over the concept of “gimme my rewards”. What are these rewards for stakers creating? If we’re all frustrated about a depressed market condition, we should also come to realize that staking rewards aren’t creating the expected outcome. And if stakers want to keep receiving and growing their rewards, they should be more thoughtful about the way how protocol revenues are directed to the humans that are in the trenches helping the DAO, every day.

If you read this proposal again, you will also understand that a 15% performance fee FOR NEW PYTs (not current Best Yield, as it’d be unethical to change the fees for all the current LPs) will be added to the revenue stream for stakers/rebalancer/treasury. And the reason for having a 15% fee instead of 10% is because with PYTs we are able to offer higher yields, hence the overall user return of the strategies would still be higher than Best Yield. Again, this 15% performance fee for PYTs will be ADDED to the distribution for stakers/rebalancer/treasury, increasing the cash flow there even with different weights.

Regarding Leagues compensation, @Salome, as William pointed out, ALL Leagues contributors are effectively getting 50% in $IDLE, so their skin is already in the game since the beginning. There’s the option to choose, but if you look just at the last 6 months, 50/50 is always been applied. Either way, consider that governance tokens held in DAO treasuries should not be considered liquid capital, and the actual cost of spending them is not immediately known, which is detrimental to treasury management.

Idle DAO created its token to decentralize the ownership and development of a suite of DeFi products that allow users to optimize their earnings and minimize risk exposure on crypto assets. Over time we worked with different type of users, and we understood that the product suite is more suitable for integrators and institutional investors (which, since data don’t lie, make up 95% of the current TVL). So our community should optimize for that. Shillers, traders, or communications that are only oriented to “buy the token it will pump” won’t create a community of actual users of the product suite. These are bad lessons that bull markets teach, growth schemes that are not creating more actual users for the products but rather aliment a “to the moon” audience. We need to grow the number of users of the products, which will help improve products and services over time, improve customer experience and retention.

I hope you can abstract from all the drama here and propose alternative models/numbers that can be voted by token holders. The only proposal I currently see with numbers that can go into a Snapshot is the one from @Biaf, as of now.

Lol vitalik knew the importance of community and marketing.
And when it comes to developing communities and awerness then yes i have bloody good insights as do many others yet they are historically ignored by this team for some reason.
So instead of getting your back up
Take the feedback from the few largest bag holders you have and make some changes.
Effective leadership is not about stubbornly sticking to a failing system but adapting.
Generating money by taking from those locked is prolonging the flaws
I doubt this proposal will pass so an alternative is needed.
I would suggest going back over calls with the whales who gave the team effective plans months ago

2 Likes