To Fee or Not to Fee, That is the Question (FastBTC Fees)

There has been lots of chatter around the 0.2% FastBTC fee and whether we should incent incoming funds by eliminating it or not.
I’ve had a personal epiphany on the subject…It’s all about grabbing market share right now.

TLDR: I recommend a feeless on-ramp thru FastBTC (subject to a minimum transaction of, say, $1000). Experiment for 3 months and evaluate the effectiveness.

Cons:

  • There are actual costs that Sovryn must incur, and these fees are needed to offset the costs.
  • Sovryn does not have any funds set aside to absorb these expenses.
  • Defi users are used to paying fees for conversion
  • If the fees are not really a deterent and the user will convert anyway, then Sovryn is leaving money on the table. (Unknown, would have to test to determine).
  • In the absence of fees, users may use FastBTC as the low cost provider to convert BTC->rBTC in their wallet and then use other RSK products (Sovryn effectively subsidizes the whole RSK infastructure).

Pro:

  • Conversions may significantly increase.
  • Users don’t convert to rBTC to just hold, they convert to rBTC to do something with their bitcoin - Sovryn has a great shot at getting the business since they’re already using the platform.
  • Reduced friction - in any new technology, adoption is higher when these barriers are removed.
  • It is a small cost for the potential to grab market share, solidify first mover advantage and be the first to build $xxx TVL.
  • $100MM of conversions would forgo $200K in fees. Pulling $100MM (or insert number) into the ecosystem would have a bigger impact than the similar amounts that are being spent on the Yield Farming Loot Drops.

We should be doing everything possible to ensure that DeFi runs through Sovryn. There will be many competitors and we need to get the biggest head start we can.
History shows that the most successful companies, whether it be public corporations, internet startups, or cryptocurrencies are the ones that sacrifice near term profitability to grab market share. Amazon, Facebook, BTC.
(It doesn’t mean everyone who does that is successful, but most who are successful have done that.)
After the moat is built, the community is established, and the network effect has done it’s thing, then the fees can be re-considered. Similar to Uniswap’s approach, where they’ve allowed for the possibility in the future, but not turned it on.

As always, just my two sats.

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I’ve already declaimed at length on Sovryn’s Discord regarding this topic; suffice it to say that I agree with you wholeheartedly.

To distil the rhetoric: BTC is Sovryn’s lifeblood and raison d’être. BTC HODLers represent an abundant, untapped resource which for ideological reasons remains closed-off to mainstream defi, yet still within reach of Sovryn; furthermore, it seems obvious that such low–time-preference mindsets, if adequately incentivised, can then make for ideal long-term stakeholders, early-adopters and grass-roots participants in platform governance.

To HODLers, who typically regard Ethereum’s and BSC’s ever-shifting foundations as emblematic of ‘everything wrong’ with defi, that 0.2% risks making ours a ‘bridge too far’ right out of the gate—and yet the idea of a free bridge, by contrast, is precisely the proverbial (and memetically marketable) call-to-arms which should cement Sovryn’s foothold and invigorate RSK as a whole.

What’s more, by making these defi-newcomers ‘honoured guests’ of the protocol, one not only fosters good-faith but also relieves pressure to immediately recoup on-costs, freeing our intrepid inductees to pursue lower-risk activities (e.g., lending) and expand comfort-zones at their leisure; as opposed to mining liquidity, sustaining impermanent loss, and then feeling (not altogether-unreasonably) that those initial misgivings were perhaps warranted after all.

Moreover, I’d argue your fifth ‘con’ is actually a ‘pro’ for this very reason: if Sovryn can parlay its first-mover advantage into becoming the de-facto gateway onto RSK, servicing all comers and aggregating liquidity on both sides of an ever-deepening moat, then that mere “head start” swiftly approaches near-unassailable escape-velocity.

And if we don’t? Well, then I’d say we’re in danger of eventually playing second-fiddle to RSK’s answer to Nerve.

N.B. @light expressed a similar notion on Discord; I’d be curious to hear his input.

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Yes. Good job listing the relevant arguments. I feel the pros outweigh the cons, for sure. Reduces friction and makes for an even better sales pitch.

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Has this been discussed internally by the team? I am curious their perspective or if it’s already in works.

I did some very quick and rudimentary analysis (please feel free to call out any errors) and to date the 0.2% FastBTC fees total 8.62 BTC since inception in January. So at average $40K BTC roughly $350K:

  • FastBTC funds are received from address: 0xca1C5B1bc55755C5e3b6Ed1afE88ABD7B26F147f
  • Export historical transactions from: RSK explorer
  • Back into the fee collected per transaction by FastBTC: <‘rBTC Received’> / (1-0.2%) - <‘rBTC Received’>
  • Total sum of fees collected is the 8.62 BTC from approximately 7800 unique addresses

I don’t want to flippantly use treasury funds, but some perspective: Our yield farming is offering 75K SOV per week atm, roughly $750K a week, twice as much as fees collected via FastBTC over 6 months, assuming my calculations are correct.

We could go deeper into this analysis and see what each unique address actually did with their rBTC, but tbh I don’t even think that level of analysis is necessary.

It seems to me covering FastBTC fees is a worthwhile investment to make. The real question is just a matter of how long to do this for and when to start it? Do we want to do it immediately or wait until two-way FastBTC is ready or when more features are ready, particularly the Bitcoin backed stablecoin which I think will be a big hit bringing rBTC over.

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I agree with you wholeheartedly. If the attraction of this deFi platform is BTC, but there’s less friction for USDC via bridges, then this does slow the amount of rBTC that enters the ecosystem. The run-up in BTC price over the past week has resulted in a loss of rBTC liquidity from the xUSD/rBTC pool. We lost 1/6th of the pool size on a run-up. That shrinks the pool. This IS a problem. That means Sovryn isn’t as well equipped to handle a rBTC run-up vs USDC. That means a good thing (BTC increasing in value) shrinks the pool. A good system should either reward or be neutral towards “positive actions”. Also, since it’s RSK, this means that we need rBTC inflows > rBTC outflows + RSK fees in order to grow. The next lending pool to be incentivized should be rBTC.

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I get the drivers here and very much align with the desire to increase entry side participation. I do - however - want to point out the difference in paying rBTC related costs and the SOV incentives. If you are suggesting a SOV based rebate for expenses - I believe that mechanism has precedent but I would be very concerned to treat the treasury like a fiat government and just have them liquidate SOV as needed to cover protocol expenses for these projects. If you are suggesting a reduction in Yield Farming rewards to cover this - we should have a community response but it seems counter to the intent. If you are suggesting we allocate more of the existing budget to pure attraction incentives rather than investing in new platform development - I would be dead set against that approach.

So - incentives are great - where are the funds coming from and does that align with goals?

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