Reduce the Loan Origination Fee to 0.5%

While the Balanced team is working on improving the rebalancing mechanism, I think reducing the loan origination fee would be reasonable. At the moment, swap fees account for much more revenue than loans, so I think reducing the origination fee will help out users without affecting revenue that much. For now, I’m considering 0.5% as a good starting point, which is half the original 1% fee before the move up to 1.15%. Once rebalancing has been worked on further, we can consider raising it again.

What does everyone think about 0.5%?

3 Likes

Again a step in the wrong direction:
You are decimating the value of BALN by reducing daily fees!
If you want to reduce balanced users frustration over what feels like hourly rebalancing:
You should instead raise the loan rewards back to 10% and reduce the peg to +/- 5% until we get more collateral types, more TVL and a more mature product overall.
You are tweeking at the wrong end:
You are proposing to reduce overall daily fees by around 23% (based on yesterday’s performance details). BALN price will go down to 1.6 USD if you do so.

2 Likes

INFO:

Daily
Loan fees / Total income

$9,300 / $22,618 = 40% (1.15%) / If, (0.5%) = $4,043 = 23.3%

OCT 12 - OCT 13


$11,229 / $23,489 = 47.8% (1.15%) / If, (0.5%) = $4,882 = 28.5%

OCT 10 - OCT 11


Weekly
Loan fees / Total income

$66,607 / $141,501 = 47% (1.15%) / If, (0.5%) = $28,959 = 27.9%

OCT 06 - OCT 13


$55,836 / $140,637 = 39.7% (1.15%) / If, (0.5%) = $24,276 = 22.2%

SEP 28 - OCT 05


Gosh. I hope you did bring up this suggestion earlier, suffer a lot of loss from the fees myself.

However reading what sirbtcch1, I also agree the problem is the TVL collateral types which needs to remind BnUSD at $1 is the root cause.
We need a lot more other collateral types to help speared out the weight on rebalancing with only relying on sICX itself.

Keeping the peg to +/- 5% is kind of a huge problem, in a so call bear market, before other collateral types are in play, we might keep on seeing $0.95 BnUSD, which affect how we use BnUSD to buy other assets.

I hope ICON 2.0 launches + BTP, will help Balanced to quickly add in more collateral type.

Tweaking the Fee, will affect a lot of BALN value, as we can see the income from performance page on Balanced.

However, if we have a short term on lowering the fee, might reduce the pain, but I can only agree on this on a very short term basics, like 1-2 week max.

A short term change for 1-2 weeks wouldn’t change the root cause. We would just postpone the same issue.

In my opinion the balanced community needs a mid to long term strategy and not just voting to replace one problem by another bigger one.

We need to agree that balanced is in it’s infancy and a bnUSD peg of +/- 5% in the first phase is not a big issue. bnUSD utility is very limited, if there are prospects of having other use cases for it we can still improve it’s stability by reducing the peg some time in the future.

Much more important for the growth of the platform and thus bnUSD is: user growth, TVL growth and adding collateral types. We could set a certain goal for the growth, once this goal is reached we could agree that balanced is big and stable enough to that bnUSD stability could be the next strategic target.

Right now, even if we reduced the loan fees many users would still not renew the loans because they would still get rebalanced (by 5-6% a day) and many will still lose money.

Losing users is a much more serious problem right now than keeping the peg at 2.5%!

Here are my thoughts on the situation:

1.) The constant pressure on bnUSD is coming from an obvious source imo. bnUSD earns 0% yield, while all other stablecoins and even ICX are earning a yield on OMM. Getting bnUSD added to OMM is a top priority in fixing this problem, there needs to be a place to put bnUSD besides buying sICX

2.) The existing messaging around encouraging people to buyback the sICX is slightly miss-guided. They should instead be hedging themselves to some extent by participating in the sICX/bnUSD pool.

People can’t be repurchasing on the Balanced DEX, or it’s just going to reverse the rebalancing process and cause it to keep happening. Rebalancing sells sICX for bnUSD, then people mint more bnUSD and reverse the process.

People are willing to purchase the sICX at a premium on the DEX for convenience, but what needs to happen is people repurchasing from a place where ICX is properly valued, such as Binance or another centralized exchange.

3.) Despite the amount of revenue earned from origination fees, I strongly support the proposal to lower them, especially until bnUSD is added to OMM and the root economic issue is solved. If we want to increase revenue, focusing on the DEX rather than taxing borrowers that are providing an essential service is a better route. Synthetix actually charges 0% interest and 0% origination fee for sUSD because those that mint sUSD take on risk for the success of Synthetix.

We as a DAO need to understand that Balanced Borrowers provide an essential service to this platform, they are not just borrowers. I personally did not recognize this until more recently and will be encouraging people to think this way going forward. They are offering up collateral to be used to keep the peg of bnUSD stable in exchange for access to cheap leverage and BALN rewards. However, right now that leverage is not cheap, so let’s make it so.

And as a side note on increasing BALN rewards for borrowers, it’s actually more ideal to incentivize them to use the bnUSD to supply liquidity rather than rewarding simply for borrowing. Increasing borrower rewards creates too high an incentive to mint bnUSD and just hold it in your wallet, which is not ideal for Balanced.

This I can certainly agree with, tho I believe the answer is to get bnUSD added to OMM and get more clear arbitrage opportunities against bnUSD. USDT/bnUSD pair coming soon

5 Likes

Is it possible to lock a loan for a period of time, in a similar manner to locking BALN? This will be reflected with higher rewards for the liquidity pools (in a close manner ot how locking BALN works) and might incentivize ppl to borrow assets and “pay” the price of rebalancing.

I really like this idea and everything mentioned makes perfect sense. That said I have the following questions/concerns:

  1. Still losing total amount of sICX but not total value - Right now reducing the rebalancing impact by being a liquidity provider in sICX/bnUSD seems to be working from a total value perspective, but due to being in the LP my sICX is still going down due to swapping. This just maybe the nature of the beast here, but if the goal was to accumulate sICX then this make it harder. Any thoughts here?
  2. RE using a CEX - Many users don’t have extra cash to keep throwing at the issue in order to buy off a centralized DEX. What do you see as the best strategy for borrowers in this case? As mentioned above, It seems we shouldn’t remint sold bnUSD to exacerbate rebalancing and I perceive using USDT from Balanced via Orbit bridge to buy back ICX on binance to be costly due to ETH gas fees. I haven’t used Orbit bridge so lmk if I’m missing something here.
  3. What ultimately do you see getting bnUSD to the point of being stable enough to be added to OMM or is it possible for OMM to add it and work through some growing pains (not sure what I don’t know here)?

I 100% agree with you On this point Scott.

1 Like

Again a step in the wrong direction:
You are decimating the value of BALN by reducing daily fees!

I don’t follow your logic. In real world economics, lowering interest rates (and fees in this case) will give people more incentive to take out loans, which could actually lead to higher fees being generated.

Temporarily decreasing origination fees to 0.5% is not a step in the wrong direction – in fact, it is actually a step in the right direction (for now), until a new rebalancing mechanism has been implemented.

If you look at the stats on stats.balanced.network, you’ll clearly see that since we raised origination fees to 1.15%, people were less eager to take out loans and in fact, it started dropping off. Economics is all about reaching a maximum sustainable equilibrium given market conditions, so your statement that it’ll decimate the value of BALN by reducing daily fees is unfounded and is not backed up by any economic data. Time and time again, the economic data has actually shown the opposite of what you’ve stated.

To help you understand how your logic is flawed, I’ll give you the following example.

McDonalds sells an overpriced burger for $10 that costs $2 to make, but is able to sell only 1000 burgers per day, which results in a daily profit of $8 x 1000 = $8000.
McDonalds decides to reduce the price of the burger to $5 to make it more affordable, and is now able to sell 5000 burgers a day, which results in a daily profit of $3 x 5000 = $15,000.

In this example, along with countless real world economics examples, lowering prices (and in this case, fees) will actually increase daily profits.

You are proposing to reduce overall daily fees by around 23% (based on yesterday’s performance details). BALN price will go down to 1.6 USD if you do so.

The above statement shows your lack of understanding about economic incentives as it wrongly assumes the amount of loans won’t increase with the reduction of origination fees. Also, I’d be interested to see how you calculated the price of BALN going down to $1.60 USD as a result of this.

2 Likes

A short term change for 1-2 weeks wouldn’t change the root cause. We would just postpone the same issue.

There are times where a short term solution is necessary until a more permanent fix can be implemented. A “duct tape” fix in this case is actually warranted since it will likely take a much longer time to implement a more permanent solution. If we don’t do something that will address at the fact that amount of loans being taken is actually falling off a cliff at the moment, you’ll continue to see a reduction in network fees generated from origination fees. Another huge consequence of this will also result in a reduction of TVL.

Band-Aid solutions are sometimes the best solutions as it allows us to react to problems quickly.

1 Like

Sorry guys, i might have missed out. Could someone explain the perceived value of lowering origination fees?

The way i understand it…

  • bnUSD doesn’t have much utility, so right now the only thing to do with it is sell it into another token. IE, no reason to buy.
  • The selling pressure makes the price go down which in turn triggers rebalancing.
  • People being rebalanced take out new loans, and sell bnUSD for sICX. Thereby compounding the problem, and triggering more rebalancing.

The way i understand the current proposal is:
Lets lower origination fees, so people who rebuy after being rebalanced will feel less bad about it afterwards.

My stance is this:
When the peg is broken, the platform needs rebalancing to occur. People who are rebuying afterwards are basicly negating the rebalancing effects. So basicly triggering more rebalancing.

Why would we want to reduce friction on a strategy that’s essentially magnifying the problem?

I don’t think I have the economic expertise to get into the weeds about the short and long term consequences of such a change, but I do know that I like cheap loans!

Lets move with this. No interest and low fees. Either 0.5% or backk to the old 1%. End goal should be 0% once bnUSD peg is solid.

1 Like

We need a pool like IUSDT to make it easier to re purchase icx from a CEX. This cuts down on current fees if one were to use IUSDC as the peg tends to differ ~1-2% loss plus ICX/Usdc pairing on binance for example is non existant so there is also trading fee there. I can live with orbit Bridge fee but at the moment it’s easier to just re buy on balanced.

I think the borrowing fee should remain at 1.15%. But think rewards should be higher for borrowing as it was in the beginning. Borrowers should be rewarded because it is the borrowers who are helping the peg and should be rewarded for that. This will also be more attractive for users which would also increase TVL.

Once BTP is up and running and utility of Bnusd has grownen then we can look at reducing the borrowing rewards.

I think we jumped the gun too fast when we reduced the peg threshold of bnusd hence we are in this situation or rebalancing every hour.

Simply put we need to wait for new collateral types and pools once BTP is out before we start playing with the peg and figure out how to fix the peg 1st. seems we have done everything backwards in that we tightened the peg but not fixing the peg

I think in tandem with this move we should also lower the LTV so people can’t keep minting so much bnUSD. Having said that, one thing you’re missing here is that it also incentivizes people to repay their debt. If it costs 1.15% to mint bnUSD, you want to wait as long as possible to repay debt

Also, Borrowers themselves provide an essential service, keeping bnUSD pegged to $1, so we should limit the burden on them during times of heavy rebalancing

Overall I’m thinking the future pitch of Balanced would be “free leverage in exchange for maintaining stability of ICON’s algorithmic stablecoin”

I would be comfortable with 0% origination fees at some point depending on DEX trading volumes

This is already going to happen

Unfortunately this doesn’t accomplish anything, it just incentivizes them to borrow and hold bnUSD, which does little to nothing for the success and growth of Balanced/bnUSD.

We need to guide people to be LPs in the sICX/bnUSD pool to hedge themselves against rebalancing, though still testing the correct proportions to make this happen

Remember we are talking about changeing fees for a very limited time:
From a user perspective:
Why are you taking a loan right now when your loan is rebalanced by approx. 5% a day and you are losing money every day rebuying your sICX?
The answer is: you want BALN rewards. You could name some other reasons but it is safe to say 90% of users think that way and won’t take a loan to cash out and buy a real life asset like a car.

Now BALN price is highly correlated to the daily fees. Right now you get pretty much 20% APY on your BALN in daily fees (pretty low already, considering this is a super high risk investment, a lot of potential future upside is already priced in).
If we cut daily fees by 23%, BALN price will plummet by approx. the same amount.

Now regarding your argument that lower origination fee will overcompensate the loss of daily fees: Are you really saying that by reducing origination fees from 1.15% to 0.5% we will see loans go up by a factor of >2.3x? If we lower the fees for 1-2months? You don’t believe that yourself? Never. Ever.
Not with such a huge limiting factor such as ICX price and overall pretty low market cap.

People will just immediately see the lower loan APY: Now 25.37% - down to 19.5% and will stop taking loans even more and a lower origination fee doesn’t overcompensate that at all.

Oh and just another side note: OMM launched on august 24th, around the same time fees were bumped up to 1.15%. That is the reason why the money went over to OMM and loan volume decreased. The 0.15% didn’t change a thing. OMM did.