SIP-0055: Zero Fee Floor Update

Bitocracy SIP | Sovryn Improvement Proposals
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Fellow Sovryns,

As a result of the latest discussions about a potential update to the Zero fees with the goal to reduce the number of redemptions, I published SIP-0055. It proposes an increase of the origination and redemption fee floors from 0.5% to 2.5%.

We intend to start the vote on Monday.

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I support this proposal.

There has been a lot of work from the core-team in the background with analysis around revenue streams and SOV tokenomics. I think it is looking excellent. The Zero floor update plays a significant role in these considerations and i would like to see this implemented.

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Can we get a recap of which parts of the contract are upgradable versus not?

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Theoretically, at this point, the entire contract is upgradable.

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By devs or bitocracy?

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Only Bitocracy can execute an upgrade.

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Thank you for the proposal!

However I really wonder, if the increase to 2.5% will be sufficient to effectively lower redemptions?

One could assume that redemptions happen because a large part of Zero users want to buy Bitcoin with leverage. Personally, I think the only KYC free, decentralized alternative is hodlhodl. Interest over there is around 10-12% if you catch a good deal.

Thus: 2.5% with Zero compared to 10-12% with the next best alternative is still a bargain.

I would be truly to tempted to use the redemption feature in that way at the same time being confident that collateral is not an issue i.e. me not being the one who gets redempted against. Of course, this is somewhat unethical because ā€œthe othersā€ are most likely hodler as well, thats why I wonā€™t do it. The temptation however is there.

So in essence - given that my understanding is correct - I would vote against this SIP and rather have redemptions to continue to be paused until the playing field is leveled again and there are other ways to get more BTC or have the fee increased to a really high level - which of course might lead to other unintended consequences which I am not knowledgeable of.

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I think this is a great idea!

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@yago @Sacro @dseroy

I would like to suggest, as a ā€˜thank youā€™ for participating in the pre-release version of Zero for a big chunk of the last year, being subjected to unusually high redemption rates, periodic outages, etc, that the existing pre-release users of the Zero protocol, those with existing LoCs, are grandfathered into a .5% base fee floor and the 2.5% base fee floor apply to new participants that join the public version after its release.

That would be some substantial community good will. And, honestly, I think well deserved. The community test run definitely helped shape the product that will be released to the public.

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Is there a way to offer a cheaper rate to stakers? It feels like a good idea from a token marketing standpoint, and it is surely a sign of goodwill to stakers.

Maybe like wallets that have greater than (X, say 50,000) of VP get a 0.5% discount, and wallets that have greater than (Y, say 100,000) vp get 1% discount.

I dont know how complicated this would beā€¦ or if its even viable, but it sounds nice, plus us stakers could use zero cheaper. Maybe im being Biased. :smiley:

I was really looking forward to cheap loansā€¦ which 2.5% aint bad, but its more than 0.5%

PS: I realize this is a duplicate, but I didnt know which forum post was more appropriate to respond too with this coment.

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As a staker I would support this SIP obviously as it means more revenueā€¦ Redemptions I also see no problem with 2.5% As for origination I really hope this is not hindering adoption. 0.5% sounded really nice. For 2.5% I am a bit vary to use it personally. That does cut a bit into the usefullness and makes me think twice if I open a loan or not.

I do like like the idea of stakers getting a noticible discount based on VP though! It would be a further incentive to get involved more deeply with Sovryn when you use ZERO a lot.

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Some comments I left in the Moā€™Money thread that I think are relevant here as well.

  1. The deferred fee is the same as the origination fee. The mechanics are already a deferred fee. The proposal is one of branding.
  2. Any changes to the origination/deferred fee will only impact LoC borrowing that occurs after the change. Existing LoCs are unaffected. That means existing LoCā€™s are ā€œgrandfathered inā€.
  3. As @666SOV suggests, these changes would require a SIP. So indeed having scheduled meetings would make a lot of sense.
  4. Some people have also suggested giving SOV stakers a discount. This is something we have been examining but would require extra dev work and testing, so is not something that will be deployable very soon.
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So, if an existing LoC borrows more against that same LoC after the new fee is instituted, that existing LoC will continue to only pay .5% origination fee on all new transactions, no matter how many times they borrow against it, until its paid off? I suspect this is not the case, and any new borrowing transactions will incur the 2.5% fee regardless of when the LoC was originally created. Please correct any logic (or lack their of) stated above.