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.