Fee adjustment: origination fees

This is less of a proposal and more of a discussion topic. I am interested in hearing thoughts on adjustments to the origination fees

Origination fees are currently 1% of the borrowed amount. This translates to the following implied interest rates based on the length of time you hold the debt:

6 months = 2%
1 year = 1%
2 years = 0.5%
4 years = 0.25%

These interest rates are low compared to MakerDAO (currently at 2% ongoing interest rates) plus we have BALN rewards currently, but we can still inch them a bit closer if the DAO is interested. If we lower collateral requirements, now would be a good time to also increase fees. I would be open to changing the fee to 1.75% or lower (MakerDAO recently lowered rates from 3.5% to 2% for ETH collateral). Since Balanced has an upfront fee, if we get too close to 2%, it becomes unfavorable to borrow from Balanced unless you are holding the debt for 1+ years.

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The fact that borrowers still get BALN allocations - it should be raised to 3.5% or slightly more origination fees instead of 1.75%/2%. We can consider bringing it down when it barely covers it.

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I don’t mind the current 1% fee, but would also not be opposed to bumping it up as it would have a positive impact on network fees. I agree with you @benny_options in that 1.75% maximum is a good target. Personally, I think 1.5% would be great.

I don’t agree with anything above that due to the utility cost of bnUSD at the moment. Since bnUSD is exclusive to ICON right now, there are a few hoops to jump through (each with with their associated) fees before you can leverage it outside Balanced. This is different from DAI, where you can immediately leverage it on other DeFi platforms without having to swap to a different asset. For example, if you wanted to earn yield on bnUSD without holding a volatile crypto, it would look something like bnUSD → sICX → ICX → some other stable coin. Each step has associated fees, so if the origination fee is boosted too high, it may reduce interest in this kind of use case.

So, I really don’t think it should go above 1.5% or 1.75% until there’s more direct utility with bnUSD (e.g. it’s possible to directly deposit bnUSD to earn yield somewhere, or low-cost conversion to another stable coin that can earn yield).

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When DAI is first created, there is also not much utility of DAI so I don’t think it is a good argument on why it should not go up to max 1.75%.

I do agree on the number of hoops one have to jump through but that’s the nature of DAI too when it first started.

I think it is only healthy if we increase the origination fees because there is already rewards allocated to the borrowers and this is another way of passing it back to the ecosystem.

If 3.5% is adopted, it would mean less than 1% interest in 4 years.

What is more important is growing that utility of bnUSD and allowing developers/entrepreneurs to build on top of Balanced.

Imagine paying very little fees on big ticket items over the span of 4 years +.

This should be the focus on whoever that is building on top of Balanced.

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Agree with @bwhli . See the real market demand and what other famous DEFI offer and Baln to provide competitive offer to attract them to come in.

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I don’t think we should be comparing to when DAI was first created. It was a different world back then with much less competition. Instead, we should be thinking about how Balanced compares to the current line of DeFi products because current competition is the only thing the matters.

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@bwhli You seemed to discount the fact that you could still get rewards from loans. No matter how much the BALN allocation will be cut from loans, you’re in fact getting back all your origination fees + earning so much more. It provides enough incentives to get into the ecosystem. So I disagree with you.

That’s fair. I’m coming from the perspective that borrowing rewards will be removed or lowered in the near future as well. Even then, I see the attractive 1%-1.5% origination fee as subsidized user acquisition that we can afford right now.

Ya, borrower reward should remove. Agreed too much incentive for current position. Abuse the system.

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In the long run, I do agree we can bring down the origination fees. But at this time, it is more beneficial to set the origination fees higher. With altruistic rebalancing and people who collateralise their ICX also getting some discount from the rebalancing, I see little reason for having low origination fees.

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may be i presume the baln reward for borrower part of marketing strategy. time to make it for real business. soon or later need to match against real market way of doing thing.

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It might be silly, but I’m thinking from a marketing/product perception perspective too. 1.x% looks way better than 2.x% or 3.x%. When it comes to fees, borrowers love lower numbers. It’s something to consider.

I believe the better way is to decrease the BALN allocation for loans but not remove it completely. It is a good way to incentivise people to come into the ecosystem and collateralise their assets. I don’t have any numbers with me but I’d assume with all the bnUSD minted, its highly likely the borrowers will spend them at some point in time if they think sICX, or BALN is cheap.

if remove the baln reward and put 1%, definetely ok for me. since the baln reward can compesate a lot of borrower interest for borrower. and part of marketing strategy for now. in future when time ripe a lot user then we can consider to increase. now merely just a new start up. marketing to get more market share is better.

It can be marketed differently. Balanced is paying you to get loans. We allocate x% of the daily BALN allocation for you to do that. I believe this will help bring in the next wave of users from other public blockchain when BTP is here. It could also be a promotion in future. But I guess the daily BALN allocation of loans will be in another thread.

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Even if our current double offer like below we should make massive marketing in DEFI world.

  1. 1% interest rate
  2. Borrower still can get 80% reward

In contrary to current sentiment, I think lower origination is better in the long run.

I think very long term borrowers are not significant revenue and that short term borrowers should be prioritised. They also use the DEX more.
The borrower reward should be a seperate discussion, but the interest IMO should be whatever generates the most fees, if we are quadruple the standard 3-6month borrow, we will only get long term borrowers that will borrow once, sit on their minted assets, and earn rewards (even if reduced).

Of course that is jsut my speculation without data, the real gold would be metrics on average hold times on other platforms and/or ideally, volume of positions opened and closed. Maybe thats just wrong and 75% of DAI is from 2 year positions on ETH or something, in which case increasing it makes sense.

Whatever rate we pick, realistically we will only get borrowers that intend to hold the loan longer than whatever our benchmark time period is versus the market.

Just thinking about it would a class of borrowing without rewards for a lower origination make any sense. Maybe we can get both sides?

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@benny_options talk this morning got me thinking about a variable origination fee (not sure if this is technically possible, but thought I’d bring it up anyway). In the talk, he mentioned incentives for BALN stakers, and how boosting LP APY is a good way to align incentives for stakers.

Could a similar system be used for origination fees? For example, BALN stakers have access to 1% origination fee while users with no stake or less than the minimum stake pay a higher origination fee? This could encourage more users to acquire and stake BALN, with the added benefit of a lower origination fee, which could help encourage users to participate in LP (since they have APY boost as well from staking).

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i agreed with @bwhli on using same method to boost origination fee by having baln as VIP ticket. We shall make Baln as much utilities as possible

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Generally speaking I like the idea of increasing the origination fees slightly. Overall I don’t see the immediate benefit to raising them significantly, however.

Part of the appeal of balanced was the low origination fees. If we are considering lowering or removing baln rewards for loans too, then it would make sense to me to have some foresight and just raise them slightly now instead of being -forced- to lower them later. Keep in mind, we can always adjust them again in the future as needed.

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