Category: Sett strategy, Fees
Scope: Sett strategies for renBTC, sBTC, tBTC, ETH/WBTC SLP, Fee Structure
Status: Rejected: Snapshot
- Migrate renBTC, sBTC, tBTC Setts to Convex with a new strategy
- Change the Standard Fee Structure from 20% Performance + 0.50% Withdrawal to 30% Performance + 0.20% Withdrawal.
- Establish the same strategy and fees on Sushi ETH/WBTC SLP Sett
- Reduce byWBTC withdrawal fee to 0.20%
- Establish 10% Performance and 0.10% withdrawal fees on Helper Vaults.
BadgerDAO is preparing to migrate our Curve Setts to Convex and launch five new vaults there.
This migration comes with new strategies that imply accumulating interest-bearing Convex tokens by the DAO and distributing these tokens to users as rewards.
This migration and the switch to the new fee structure need to be vetted by the BadgerDAO governance.
Three BIPs are going to be published in preparation for the Convex Setts Launch:
- Curve Setts Migration Approval, Strategy changes, and Fee Structure changes
- 12 Week Liquidity Mining Program
- Badger Boost Power-UP
The primary reason to migrate our Curve Setts to Convex is simple: to boost their underlying APYs.
Convex allows to increase CRV rewards to the vaults and provides CVX tokens on top of that.
With this migration and new vaults launch, we would like to switch to a more symbiotic behavior towards the Curve and Convex ecosystem.
The strategy is to distribute most of the tokens to users, accumulate the tokens in the treasury, and only sell a small part for Bitcoin. The details are available in the article.
We believe that this approach will be more beneficial for Badger, Convex, Curve, our users - and Bitcoin in DeFi, as it will allow it to have higher liquidity over the long term.
0.50% withdrawal fees have been the primary source of income for the DAO and account for the absolute majority of its Sett revenue.
The withdrawal fees have been performing great within the circumstances of market volatility and the gradual emission reduction.
On Curve Setts, the 0.50% withdrawal fee outperformed the 2% management fee structure by the magnitude of about 1.6x.
Besides being profitable, withdrawal fees provide an extra layer of security against economic exploits and allow different clusters of users (active yield seekers and long-term holders) to pay at different rates.
For example, a user who deposited Bitcoin into a Sett to hold it there for two years would still only pay 0.50%, while with a 2% management fee structure they would have to pay 4%, or 8x more over the same period.
Still, the community has expressed the sentiment that the 0.50% fees are high and that it would be more welcome if the DAO took a larger cut from what it earns for users instead of taxing the principal either by management or withdrawal fees.
Previously, the underlying APYs on our Curve Setts were not allowing the DAO to be cost-efficient without a high withdrawal fee.
However, with Convex Setts Launch, those APYs will increase, allowing us to switch to a new fee model with 30% performance and 0.20% withdrawal fees without losing out on cost efficiency.
A 0.20% withdrawal fee is lower than what users pay for a token swap on DEXes, so it shouldn’t be considered high, while it would still serve as a security layer and a source of BTC income for the DAO.
Switching to lower fees will allow users to move capital more freely and have an easier time covering the costs on their principal in the lower APY environment that is generally typical for BTC.
This change will also reduce the total cost of redeeming ibBTC from 0.60% to 0.30%, making the total cost of going in and out from WBTC to ibBTC 0.50%, which is three times lower than what it was a couple of weeks ago.
On the byWBTC Sett BadgerDAO can only reduce the withdrawal fee on its own, so the vote will only affect that:
As Sushi ETH/WBTC Sett is similar to the Convex vaults, it makes sense to consider adopting both the fee structure and the new underlying strategy for the Sett.
The fee change can go live on the Convex Launch date, the strategy would need to be developed and tested, so would take more time.
I propose no change on the other Sushi Vaults at the time, as they are directly related to BadgerDAO’s tokens and thus perhaps require a different treatment.
- Only change the fees, and keep the strategy as is
Badger Convex Sett users will receive interest-bearing Convex tokens as a reward:
For these vaults, the suggested fees are 0.10% withdrawal and 10% performance.
There is an intention to increase Bitcoin yields on Curve and Convex by voting with the CVX tokens from the vault once the Convex governance goes live.
Introducing a small fee and moderate incentives to these vaults will allow:
- for the DAO to accumulate more Convex tokens
- for Badger users to have a way to earn more Badger with their yield while supporting the ecosystem
- to invite Convex and cvxCRV token holders to be a part of the BadgerDAO community
If approved by the Governance, the changes to the fee structure will be implemented on Convex Launch.
If the Sushi ETH/WBTC Sett strategy change is voted in, that would require additional development, testing, review and deploy steps, so that part of the BIP would take more time to implement.