Increase origination fee from 0.75% to 1%

Decreasing the fee was to help offset some of the pains of rebalancing.

Rebalancing has been limited with recent changes.

Is increasing origination fee from 0.75% to 1% something we are interested in?

@AwaxJago what are your thoughts on increasing the origination fee and moving the rebalancing threshold to 2% from 2.5%. In the past two weeks, there have been very few rebalancing transactions. I think the supply of bnUSD has reached a point where it is more stable, so that could be why there is less rebalancing. If we move it to 2%, it would also further bnUSD’s use case as a stablecoin because it’ll always be redeemable for $0.98 instead of $0.975.


My hope in starting this thread was to find the next best step in finding balance. Thank you for your input.

Maybe it would be better to tighten the rebalancing threshold first, and see how it goes (with regards to rebalancing); And if all is well, we can increase origination fee then.

If we do both, and rebalancing increases to the point borrowers are put in a borrow/buy loop; then it could look disingenuous. If that makes sense.

Hmm, overall I’m actually leaning toward the opposite. I think we need to have a meta-governance topic about the selling point of minting bnUSD and using Balanced as a platform for leverage, basically, how to attract more borrowers.

The low origination fee is great without rebalancing, but a 1% origination fee would imply a 365% interest rate on any rebalancing that was done 24 hours after borrowing. The implied rate can go up drastically depending on how frequent rebalancing occurs.

I have it in my to-do’s to organize this into a proper meta-governance thread, but overall, I’m thinking something like this as the framework for the discussion.

“Get free leverage in exchange for maintaining the stability of our algo-stablecoin, bnUSD”

I’m not saying to do this overnight, but overall I’d like to see more people borrowing bnUSD, trading bnUSD, and have bnUSD be more stable. To do this, I was thinking:

  • Lower origination fee overtime (perhaps eventually to 0%)
  • Tighten rebalancing threshold to 1% or tighter
  • Increase LTV
  • Increase borrower rewards, just a bit

After doing this, I’d hope for the following results:

  • Greater number of borrowers
  • Greater amount of bnUSD borrowed
  • More stable bnUSD
  • Less noticeable rebalancing.
    As the number of borrowers and amount of bnUSD borrowed grows, it becomes less noticeable to individual accounts.
  • Increase in total revenue.
    We can hopefully make up any lost origination fee revenue with higher fees earned from increased trading volume. Remember, rebalancing also drives trading fees, as the rebalance transaction occurs against our own DEX. Additionally, a tighter peg for bnUSD would result in better execution, making it a more appealing place to trade assets.
1 Like

Thank you for your input.

So would the next best step be changing the rebalancing threshold to 2% from 2.5%?

Or would combining that move with a lowering of the origination fee be a good idea ~ as it may trigger more rebalancing.

Let us say: Change the rebalancing threshold to 2% from 2.5% and lower the origination fee from 0.75% to 0.6%.

How does that sound?

1 Like

That sounds more interesting to me. @bwhli @arch if you have any other thoughts here let us know

I think overall a slow drift is reasonable. My current issue with rebalancing now lies with the very rigid edges.

Is some sort of time rating still on the cards?

With regards to origination, it really depends on how long time horizon. At the longest time horizon, lowest (0) origination with the largest possible TVL is probably best. However, realistically without access to all the capital that would allow that, we are leaving some revenue on the table if origination is ‘too low’. I think this is an area with a decent amount of leeway for experimentation with relatively low impact, as there is never any retroactive reprecussions, only forward looking changes. EDIT: zero is always a dangerous number, maybe a tiny amount is most correct, but nothing sounds as sexy as zero… not sure about that one.

I don’t think the exact peg % matters as much atm, since it often sits on one edge. I do think maybe a good metric to measure our peg by is not how far it is now, but the derivative of the peg versus time, basically the area, which will tell us how long + how far the leg is off by as a singular number. I feel there has to be a good formal way of measuring accuracy of the peg of a stable coin. (Which maybe different depending on use case). But if we can’t quantify “this is a good peg” then its hard to work towards it.
Because if we decide a good peg means never straying an inch from the set limit, then its a waste of time to develop any time based solutions.

It seems obvious(maybe?) that there are parties trading in sICX:bnUSD because rebalancing is so infrequent now, so if you change the peg, likely whoever is trading will adjust their parameters slightly so the move is unlikely to cause a huge increase in rebalancing…

1 Like

How about charging interest instead of origination fees? I know the 0% interest is a selling point for Balanced but is it not worth considering?

Sorry for letting this slip through the cracks!

An ongoing interest rate is possible, but only something I’d want to do in an extreme case. It comes with an entirely new set of issues/considerations. I’m glad you brought it up though so I can give you more background.

We’d be managing the bnUSD peg using indirect monetary policy, jacking up interest rates overnight to try to stimulate demand for bnUSD, or setting them to 0 if we need to increase supply. It’s just a very different mechanism from a monetary policy standpoint.

And even more-so, when I first came up with Balanced I wanted to create a product that doesn’t force interest rates. In fact, most companies that make money on debt originations earn income from origination fees, then they actually pass the interest payments to longer term investors through asset-backed securities.

My background prior to crypto is in ABS which is where the original idea came from. Here is a great website to dig into the ABS market if you’re interested. You’d be surprised at the fact that just about everything you pay interest on, the interest goes to these ABS bond holders, not the company you think you’re paying interest to (car payments, student loans, mortgages, smart phone installment plans, and more). Click on the Market Data dropdown menu and you’ll see the many different sectors.

Balanced doesn’t need more capital to originate more debt. We don’t need to charge interest in order to raise money from other investors in the ABS market, so in reality, interest should not be necessary at all for the platform to be successful. Omm needs to charge an interest rate because they have these outside investors (depositors) that need to make money on their capital. Balanced mints bnUSD from thin air, so we don’t have that issue.

1 Like