This proposal suggests the introduction of a 10% protocol fee on Fraxlend, Frax Finance’s lending platform. This initiative is aimed at aligning Fraxlend more closely with industry standards, particularly mirroring practices of major players like Aave, and leveraging its value to support our goal of achieving a 100% Collateralization Ratio (CR) for the FRAX stablecoin.
Background and Motivation
Since its inception, Fraxlend has operated without a protocol fee, focusing on growth and user acquisition. However, as we evolve and aim to fortify our financial stability and service quality, introducing an protocol fee becomes essential. Setting an protocol fee at 10% positions Fraxlend competitively in the DeFi lending market and generates revenue that can be reinvested into the platform and the FRAX ecosystem.
Proposal Details
Smart Contract Compatibility: Our existing Fraxlend smart contracts are already equipped to support this fee structure, allowing for a smooth implementation process. Protocol fee is a percentage of interest which goes to Frax Finance DAO.
Fee Implementation: Introduce a 10% protocol fee across all lending pairs on Fraxlend.
Revenue Utilization: The revenue generated from this fee will contribute to the stability and growth of the FRAX stablecoin, aiding our pursuit of a 100% Collateralization Ratio.
Happy to see proposals for getting to 100%CR and a sustainable protocol.
Just to be clear about the current fees that go to the protocol for any of us who are unsure:
We have an AMO that mints Frax that has generated 63,142 in the last 7 days in earnings or $3.2 million annualized currently. Is that correct?
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Aside from the AMO, there is also a lending rate spread?
Where in facts.frax.finance would we find what this spread works out to weekly?
For example on the CRV pair the lender receives ~25% APR but borrower pays 43% APY.
If fraxlend captures this spread where can we track the earnings?
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Would be good to show total combined earnings in the last 7 days:
AMO fees
Interest spread fees
Liquidations fees
potential 10% new fee
I’m not sure Aave has an AMO for earnings similar to Frax so it may not be an apples to apples comparison.
I propose or request in addition to showing protocol fees above that we also make the net rates to borrowers and lenders clear if this proposal is passed.
ie if a lender deposits 100k frax and gets 10% APR minus 10% fee they should see the net APR they get.
If loans are auto-compounded then they should be displayed as APY otherwise they should be displayed as APR. This is standard practice in fairness of all parties.
Hey, Thanks a lot for your active participation and questions. So, before I start answering your questions, I should note that FraxlendAMO is playing the role of a lender in the Fraxlend markets, and it earns exactly the same as other lenders from these markets. This earning is totally separate from the Fraxlend fee structure. So, after applying protocol fees, Fraxlend AMO will also earn 10% less than its current earnings, assuming everything else remains constant.
Yes, its correct.
The difference between Lend APR and Borrow APR is caused by ratio between total amount of borrowed and total amount of lent, since each market is isolated. so there is no hidden fee or yield here that is being captured by protocol.
So to be clear, all Protocol earnings are:
AMO fees : Its not fee and as I noted at the beginning, its lending interest, which can be tracked on frax facts AMO page
Interest spread fees: there is no spread fee
Liquidations fees: There are 0% - 2% liquidation fees at the moment depending on the market
Potential 10% new fee (Protocol fee): The protocol fee is a percentage of interest that goes to Frax Finance DAO. and in your example, lender will earn 9% after the deduction of the fee (10% fee * 10% APR = 1% APR will go to DAO)
Please let me know if there are any other questions about Fraxlend Fee structure.
