TIP-065: tBTC Fee Holiday

Vote Type Token holder DAO Snapshot with a 7-day vote period.

DAO-elected Sponsors @sap, @JohnPackel, @Eastban

Timeline 5 days for comment / discussion on this proposal. Token holder DAO Snapshot with a 7-day vote period.

Proposal Reduce tBTC mint fee to 0%, and reduce redemption fee to 0% for 60 days.

After 60 days, mint and redemption fees will be reinstated at their current values of 0.1% mint and 0.2% redemption.

Background This proposal suggests a temporary pause of the tBTC mint fee, and a reduction of the redemption fee, to eliminate friction for new users of tBTC and enable new utility and use cases.

tBTC is at a crucial inflection point in its growth trajectory. Liquidity and TVL have grown steadily since launch, but mainstream DeFi use cases, such as lending markets and derivative trading, are pending an increase in TVL and volume.

Rationale Threshold DAO currently charges a 0.1% mint fee, and a 0.2% redemption fee, which imposes a cost to DeFi users that wish to mint tBTC, and a spread between the tBTC and BTC price for traders. This reduces the amount of capital that can flow into tBTC, as well as the likelihood of arbitrage opportunities for tBTC traders and bots.

A pause of the bridge fees will enable new tBTC to enter the system, and reduce tBTC and BTC spread. This allows users that want to earn BTC yield to do so without reducing their principal, as well as market makers to quote tighter spreads, and provide more liquidity with confidence.

A short term reduction in fees will allow tBTC to reach the critical mass required for mainstream DeFi use cases.

Considerations A valid concern of a reduction of bridge fees is that it removes the disincentive of tBTC redemption, which could allow tBTC supply to be drained.

Other considerations on the dynamics of fee reduction in the face of a drain attack:

A symmetrical advantage. Traders that want to redeem tBTC to arbitrage create demand for tBTC, which motivates tBTC mints. LP Incentives. tBTC has constant demand pressure from T token LP incentives. If tBTC LP TVL reduces, APY increases. Single-sided deposit bonuses. LPs are incentivised to return stable pools to a balanced position, which creates an additional incentive to mint and deposit tBTC. No change in fundamentals. tBTC allows BTC users to grow their BTC holdings. Users sidelined due to the mint fee will be able to enter the system without cost.

Outcomes The desired outcome of the fee holiday is to encourage new tBTC into the system, and create opportunities for interchain arbitrage, to boost tBTC volume. The goal is to enable new tBTC use cases with leading DeFi protocols.

Execution and Timing tBTC fees can be adjusted by the Threshold Council with a delay of 48 hours, before the fee change can be finalised.

Once the fee update has been executed, the fee holiday will commence and remain in place for 60 days.

There will be a similar delay to reintroduce fees, which means the process to reintroduce fees will commence after ~58 days.

The proposal can be accompanied by a “tBTC Holiday Season” type campaign, to spread the word of the reduction in fees over end of solar and lunar year holidays.