Proposal for DAO lead stability fee reduction investigation

The stability fee is 2% per year for all active safes. This supposedly pays for rate setting, rai twap oracle updates, OSM and other automation contracts.

Let us assume that LUSD is RAI’s main and closest competitor for arguments sake. They achieve over $500MM in TVL generating $30MM protocol revenue in less than 2 years with a 0.5% one-time borrow fee (this borrow fee is slightly variable depending on volume but 0.5% is the base and what most users would pay).

Should we assume that the opportunity cost of ‘true’ decentralisation from the ETH/USD chainlink oracle that Liquity piggybacks on for their protocol is >1.5%? Perhaps that is the actual cost, but I think there should be an indepth DAO lead investigation into the possible scenarios of reducing the stabiliity fee.

Outcomes of the investigation would be as follows:

  • Current runway of 2% stability fee for complete automation at current TVL
  • Projected new TVL upon reduction of fee at various levels, and the runway of those cases
  • Recommendations on scaling down stability fee whether that be over many months, immediate, or not recommended
  • Analysis of current protocol costs to see if they can be reduced (such as slower oracle updates, etc) and their effect on protocol runway
  • Investigation of various alternative ways to generate protocol revenue to mitigate reduction of stability fee

Probably a good idea to start the investigation here, with Fabio’s pinger incentives update:

I agree wholeheartedly. On all dimensions.

I suspect that our stability fee, and the fees we pay to keepers, pingers, bots and oracles are likely too high.

The only reason a stability fee must exist is to pay for these things. Whatever savings are had should be passed along to safe holders.

After talking with Fabio, I propose a 0.5% stability fee.

With the current fee and pinger configuration RAI has a 4 year runway.

Reducing to 0.5% would yield a 1 year runway, with the current pinger configuration and current debt levels. The lower sf should generate more debt and increase runway.

Further, we could replace one of the most costly pingers, RAI medianizer(chainlink TWAP) with a UniV3 TWAP. This would eliminate this cost entirely and provide even more runway.


Response to Keeper Costs & Stability Fees

To continue this discussion I partnered with the DAO’s development team to better understand the flows of RAI vis a vis the protocol’s balance sheet.

To set the stage, I will briefly describe the “business” of the robots that keep the protocol ticking:

  • Income:

    • Substantially all of the protocol’s income is generated by stability fees which accrue to a Safe owner’s debt position.
    • Currently, this fee accrues to a safe at a rate of 2% of the outstanding debt per year, but this has historically varied.
    • Most notably, this fee is only realized when a safe owner returns RAI debt to his/her Safe. In other words, the protocol is always billing, but rarely collecting.
    • It is difficult to model fee realization due to the sporadic nature of deleveraging events.
  • Expenses:

    • In order to keep essential data current and incentivize orderly operations of Safe activities, the protocol incentivizes third-party users to constantly update key on-chain contracts.
      • These third parties bear costs associated with making on-chain transactions, and therefore, the Reflexer protocol remits an amount of RAI back to these third parties.
      • On average, ~900 of these updates and remittances happen every month.
    • The Reflexer DAO development team has drastically improved upon the efficiency of these updates and competition amongst third parties for these rewards has generally increased.
  • Current Protocol Balance Sheet

    • Reflexer’s balance sheet is currently in a very healthy position considering estimated outlfows.
      • The protocol currently custodies ~522K RAI, which has a market value of ~$1.5M or ~800 ETH
      • Monthly outflows for the protcol approximate about 6,000 RAI, implying ~7 years of runway with no additional credit to stability fee accrual.
    • At the current level of minted RAI, the protocol accrues (but again does not receive) ~5k RAI
      • Through an optimistic lens, the protocol is “more or less breakeven”
  • Proposal - I believe the DAO has ample flexibility to lower the protocol’s stability fee to a nominal rate - 0.5% - for at least the next 6 months.

  • Keep Stability Fee At 2%
  • Reduce Stability Fee to 0.5%
  • Other - Please Comment

0 voters


thank you for the info regarding the costs and forecasts.

i support the decision to change stability fee, at least until we consider it is needed to be changed again.

1 Like

Nice cost breakdown, I vote for fee reduction to 0.5%

Wholeheartedly support reducing to 0.5% for the reasons stated here.

Update on Stability Fees and Keeper Costs


I come bringing good news and bad news, but mostly good news.

The bad news is that I was patently incorrect in my understanding of the protocol’s balance sheet. As shown on our analytics page, the protocol has two primary silos of RAI-denominated assets: the System Surplus and the Surplus in Treasury. Now, abhorrent naming conventions aside, these silos do two, very different, things.

The System Surplus (523K RAI) primarily functions as the protocol’s lender of last resort. Should a safe be eligible for liquidation, the liquidation not succeed, and sufficient time elapse, this silo of assets can be used to encourage solvency. This silo is funded by a portion of the stability fee accrued by minters. The split to the system surplus is currently set to 60% of all stability fees accrued by the protocol, and, notably, this split is ungoverned (i.e., cannot be changed).

The Surplus in Treasury (146K RAI) is the other pocket of balance sheet RAI. This is the account from which keepers are reimbursed for keeping our system up to date. Now, an astute reader (you) should say, “Well, fuck, kingfish, that’s a whole lot less runway to pay keepers, and it sounds like this pocket only receives 40% of stability fees too!” First, watch your damn language. Second, yes. I told you we had some bad news.

It is true that our runway is much shorter at current levels. So, here’s the good news. The team discussed this situation at length, and we’ve discovered some interesting opportunities to reduce keeper costs very significantly. My above post mentioned that I estimate a monthly burn of ~6K RAI, or about 1/24th of our Surplus in Treasury. I have been told that it is likely achievable (with very little degradation of security) to reduce these state update costs by a very large percentage.

Our plan on cost reduction is multi-faceted, and there will be more details to come as we further investigate the feasibility of the different avenues we’ve discussed. But, I estimate that we will significantly increase our projected runway.

Here’s the main point of this update: Even in context of my updated view of protocol flows, we are in a fine position to reduce the stability fee to 0.5% for at least the next six months. With the support of the team, I’ve asked Pies to perform the necessary operations to put this proposal to a formal DAO vote.

I’m excited about the progress we expect to make on keeper costs and RAI supply expansion. Please stay tuned for more information on both of these things to come.


Oh yeah, one more fun thing. Stability fees are not accrued and unearned until payback. Apparently stability fees are automagically collected somehow to treasury pretty frequently. Fabio had to explain it to me like 5 times, and frankly, I still don’t understand how it’s possible. I’m going to chalk it up to crypto magic that is once again proving that: