ADR 009: Reserve Income and Fee Overhaul

Changelog

17 Apr 23: drafted
11 July 23: removed Reserve Income section due to being a contentiously large change (may be addressed in a separate ADR)

Status

The acceptance of ADR 008 ^(1) necessitates an overhaul of Reserve Income and Fees; this ADR.

ADR 008 seeks to reduce L1 Outbound Fees to a minimum (1:1 gas spent) to make ETH and BTC swaps cheaper, thus drive up L1 swap adoption. In past this fee (the multiplier charged on top of L1 outbounds), drove ~500k of annual income to the RESERVE (2022 terms). ^(2) The L1 Outbound Fee lower bound is priced in USD, but other fees are priced in RUNE.

The community wish to overhaul fees to make them easier to understand, fairer, and more appropriate for the purposes of TC.

Three Goals

Overhaul fee price denomination
Revamp fees to source 500k in annual income to make up for ADR 008 ~~3. Overhaul the role of the RESERVE in fees~~

** THORChain Fees **

Fee	Description	Amount	Recipient
Liquidity Fee	Paid on every swap	Proportional to slip	100% to Network participants intra-block
L1 Outbound Fee	L1 Outbounds	Ideally 1:1 gas spent, but a minimum of $1.00 is enforced to pay for TSS resources	Reserve
Native Outbound Fee	RUNE and synth outbounds	0.02 RUNE	Reserve
Native Transaction Fee	RUNE and synth transfers	0.02 RUNE	Reserve
TNS Fees	Fees to register TNS	10 RUNE + 10 RUNE per year	Reserve

Proposal

** USD Pricing ** All fees users directly pay should be delineated in USD terms using the internal USD price feed.

MinimumL1OutboundFeeUSD :1_0000_0000 -> MinimumL1OutboundFeeUSD : 2_0000_0000
OutboundTransactionFee : 200_0000 -> NativeOutboundFeeUSD : 2000_0000 (20c)
NativeTransactionFee : 200_0000 -> NativeTransactionFeeUSD : 2000_0000 (20c)
TNSRegisterFee: 10_0000_0000, -> TNSRegisterFeeUSD: 10_0000_0000, ($10)
TNSFeePerBlock: 20, -> TNSFeePerBlockUSD: 20, ($10 per year)

500k Extra Income

To source another 500k in income, the Native Outbound and Transaction fees should be increased from ~0.02R (3c) to 20c (as above), and the MinimumL1OutboundFeeUSD should be repriced from $1.00 to $2.00.

~~Role of Reserve~~

~~The RESERVE is a large pool of capital that is used~~

~~- to pay out to Network participants on a smoothing function (reduce volatility)~~

~~- fund ILP (deprecated)~~

~~- fund Protocol Owned Liquidity (a profit-seeking facility and LP-of-last-resort)~~

One of the draw-backs from paying fees intra-block is volatility - yield for Savers, LPs and Nodes can fluctuate depending on the daily economic activity of the chain. This begs the question - why not pay all fees into the Reserve and slightly increase the Emissions? This means ALL income goes into a smoothing function and yield would be fairly constant even over periods of 3-6 months. The yield computed daily, monthly or even yearly would be very similar, thus frontends and wallets would align much closer when displaying APR.

Decision

PENDING

Detailed Design

Implementation Requirements

revamp fees to use USD pricing ~~- divert 100% of liquidity fees to the RESERVE~~

Mimir Requirements

Set all new fees

~~Yield will drop by 25% for network participants, so EmissionCurve should be changed from 8 to 6, which will increase it back by +25%~~

Consequences

Positive

~~- Network participants will enjoy smoothed yield that doesn't fluctuate monthly, but is the same magnitude~~

Reserve Income is re-established
Arbs will have much better PnL tracking since fees are priced in USD

Negative

Arbs will pay 20c per synth swap, which may erode synth arb volume

Neutral

Exchanges will need to be notified that the transfer fee has increased and how much

~~- Block Rewards will increase~~

References

(1) https://gitlab.com/thorchain/thornode/-/blob/develop/docs/architecture/adr-008-implement-dynamic-outbound-fee-multiplier.md (2) https://flipsidecrypto.xyz/Multipartite/reserve-cumulative-income-health-rOUjF2

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