[TIP-010] Introduce THORSwap fees for Lending (Borrow)

🔗 TIP-010 Temp-check poll

THE PROPOSAL

If passed, this proposal will introduce an origination fee to THORChain loans on THORSwap.

The "base origination fee" will be determined based on the result of this proposal:

• 0 bps - No fee, remains fee. Best user capture but least sustainable
• 50 bps (0.5%)
• 100 bps (1%) - inline with industry rates

Additionally, the fee will be charged in a tiered format discounted based on size of loan and amount of vTHOR held. Up to remaining completely free for holders ≥500K vTHOR.

Example based on 1% base fee:

Regardless of results of this proposal, there will be no fees charged for Loans under $100 value.

Fees earned will be shared 75/25 between vTHOR stakers and treasury as in-line with current swap fee structure.

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Summary

While THORSwap saw significant growth in volume and affiliate fee collection in 2023, the 75/25% fee-sharing structure poses a challenge for long term sustainability to support continued development and growth.

Swaps have been the only product for which THORSwap charges a fee. After the recent TIP-008 passed, a 5BPS fee will be added to Earn (Savers) deposits.

It in the first 200 Days since the launch of THORChain lending, 2000 loans have been opened with a total collateral value of $42.16M. ( Source )

Following THORNode release v128, 60m $RUNE will be burned to create capacity for 2.1k BTC (or 41k ETH) collateral for lending with a fixed LTV of 50%. This introduces over $100M of new potential loans to the system, with a much more attractive LTV.

This THORChain update will finally give interfaces the ability to add affiliate fee on loans. These developments present a maturity of the Lending product and another potential source of significant revenue.

Motivation

Current Situation: THORSwap does not charge a fee for Lending (0 bps) Need for Change: THORSwap needs to increase revenue to achieve long term sustainability. This proposal recommends THORSwap begins charging for Lending services which it has previously provided for free for 185 Days.

Fee references:

In TradFi, it is common to see 0.5-5% origination fees for loans. 0% for good credit scores/depending on loan terms and conditions (ie. overall lower interest rate). Some other models include Curve who do % per time.

Another model is Liquidity (LUSD) which applies a one time variable fee (and determined algorithmically) and has a minimum value of 0.5% under normal operation. (The fee rate is confined to a range between 0.5% and 5% and is multiplied by the amount of liquidity drawn by the borrower.)

• Blockfi used to charge 2% and Nexo was flexible up to 2% depending on LTV and loan term.
• Aave charges 0.09% for flash loans.
• Solend: 0.1%
• Hodlhodl: 1 - 5 months: 1%, 6 - 12 months: 1.5%
• NFTY: 1%

Justification for Fees:

As THORChain Loans do not charge interest, have no expiry and cannot be liquidated. This means the only fee that can be charged is a fair origination for on-going support and maintenance of the product for users.

Implementation Plan

Lending Origination Fee will be turned if the proposal is passed/THORChain PR is merged. There will be no fees charged for loans under $100 value.

Fees will be shared 75/25 between vTHOR stakers and treasury as in-line with current swap fee structure.

How fees will be applied:

Currently, users have to pay slip fees when taking out a loan. Previously, large transactions in shallow pools will incur larger fees. If this proposal is passed, additional THORSwap service fee will be applied on inbound amount before slippage is calculated.

Benefits

Improve THORSwap sustainability. Additional utility for $THOR/ $vTHOR holders.

Drawbacks

Potential to be undercut by other THORChain lending interfaces.