As a fond advocate of IDLE, I found myself coming to the same conclusion, increase the value proposition of IDLE’s business model.
I believe that the 10% fee is a major step in the right direction
As I begin to see the vast potential for the DeFi space as a whole, I see the reality that IDLE can truly establish itself as an industry leading protocol that’s widely integrated in the ever expanding DeFi space.
This presents an amazing opportunity to own part of this amazing protocol at an early stage in the industry. So, currently one can purchase IDLE and now hold a share of the protocol and participate in governance whilst owning a part of profitable decentralized protocol.
However, upkeep is upkeep. Governance means responsibility. Right now, owning coins to participate in voting is not a good value proposition to the naked eye which cannot see the bigger value proposition down the line as IDLE begins to take “Defispace Share”.
This is quite simply due to the fact that IDLE currently doesn’t have a high fee structure. However, this is good as we’re trying to onboard as many potential platforms/protocols as possible, and less fee’s mean more investors trying the protocol for the first time. Once they’re hooked, the trial fee can expire and increase to a higher rate that can help fund governance and/or team. This would then open the fee floodgates which would stream back to the dedicated governance token holders. Therefore, creating incentives that will contribute to bringing more governance token holders as well as increasing TVL.
With this in mind, the protocol needs to balance its timing with adjusting the low fee’s for early onboarding incentives and factoring in the value of the governance token over time.
Perhaps
I believe these are several ideas to flesh out:
Timeline on increasing fee’s to generate profit for governance token holders
Developing Scarcity: Owning 1 Idle = true ownership of a profitable DeFi protocol. This should highly incentivize people from all walks of life to participate. That way, those holding IDLE see appreciation in both the value of their IDLE and their share of the fee’s the platform generates.
i would say a small fee of 1% or so on stablecoins would be sufficient. Perhaps half of that fee can be used to burn IDLE, making it a scarce token over time. And the other half goes to IDLE holders, so it will be a token with direct value instead of governance only.
I would like to better explore the first one that you mentioned, the business model and the fee system.
The current Idle model is a plain 10% fee charged on profits and taken on withdrawals.
During last month, two dynamics have been noticed and they might work in contrast to a proper protocol’s scalability (which aims to achieve high development speed and good constant cash flow).
Fees are charged when a user leaves the platform. This means that the interests of the protocol and users’ advantages are not aligned. The protocol could paradoxically work to push users to take back their deposits and realize accrued fees. On the other side, users should be incentivized to keep their money in the protocol as long as possible (through liquidity mining and optimized yields). This is even more clear if long-term LPs programs are implemented.
High TVL does not mean high accrued fees. For example, $ 100M worth of wBTC gains only ~ 0.1% per year. The overall earned fees would be $14’000/year.
Two main questions now come to my mind:
How can we improve the protocol’s fee structure? Should it be a fixed amount, a dynamic value, or a mixed solution?
When the fees should be accrued? (on withdraws or periodically)
More variables mean a better alignment between users and the protocol’s needs. But as you can imagine, complexity increases a lot when we add more parameters. Therefore, if we want to find an equilibrium here, we should take into account also the tech side of the thing, and not only users’ gains or protocol’s profits.
Maybe we can completely change the implementation of the fees. Instead of taking them to the withdrawal, putting them in input, perhaps 0.5-1% of the capital that is paid, in this way there would be a more constant income from the fees than having to wait for the withdrawal from the pool.
Furthermore, I would lower the fees when withdrawing farmed tokens, I think 10% is a bit too expensive, also given the already high cost of gas. We can think of a percentage between 1% and 5%.