Change of Fee model, change of mindset

Today an important vote passed with a large majority. Soon we will switch from a performance fee and a withdrawal fee, to just a performance fee. An exciting but also slightly scary change, it will change some things within the protocol.

Our revenue is less predictable and TVL is less of an important metric.

Withdrawal fees have a direct correlation with TVL, more TVL always means more fees. In our new situation it’s less correlated, if our TVL doubles but all strategies are 50% less profitable we will have gained nothing. We will be more depended on market conditions and profitable strategies.

More flexibility for users

Capital in crypto is very fluid and opportunistic, it likes to shop around for the best rates. A withdrawal fee is a clear barrier for that kind of behaviour. Without the fee capital will come faster, but also leave sooner if something better presents itself.

We can unleash the power of Pickle incentives

With the withdrawal fees users needed a certain time to “break-even”, and some felt held hostage because of that. To avoid bad blood, we needed to be very careful with removing rewards. In the new situation we aren’t constraint anymore, we can be more aggressive with adding and removing rewards.

And that last point brings me to a (in my opinion) underutilized part of our protocol.

Pickle incentives

As time passes, more protocols with similar goals will enter the market. Not only base layer yield aggregators (e.g. Yearn, Harvest), also aggregators that will be build on top of the base layer (e.g. Yaxis, Barnbridge?). The whole yield farming craze introduced some interesting dynamics, protocol inflating their own token to reward LP’s for bringing their assets. Often Hyperinflationary at the beginning, making it very attractive to farm. The next step is making it sustainable, most fail there and die. Pickle didn’t, so it might be a good moment to take the next step in utilizing the rewards.

Right now we are using Pickle rewards to prop up our APY’s in the hope it makes it more attractive for capital to come to Pickle. The next step (imo) would be to consciously pick a goal we want to achieve and align our rewards accordingly.

For example, a new strategy appears that’s highly profitable. All yield protocols want as much of that pie as possible. So do we, and we can entice them by aggressively rewarding pickle to that strategy and outcompete all competition. I can imagine a future where we have a whole library of strategies, but only reward a couple of them. Only the ones that are most aligned with our goals at that moment, be it profitability or bringing something to a peg.

The strength of our DAO is not only coming up with innovative strategies, but also being able to pull the right levers to attract the capital to us. Trying to be competitive in too many assets/strategies won’t be very effective, pick(l)ing the right ones will. We could for example have a weekly or bi-weekly vote that determinate what assets should get priority(for reasons we determine) , putting it in a strict format will give users peace of mind. Change doesn’t necessarily mean uncertainty if you bake it into the protocol.

One big counter-argument for such a system would be “the park and forget” model. I personally think the space is not ready for something like that. Capital is too opportunistic, and the majority will leave in a blink of an eye if they thought it would be beneficial for them to park their assets somewhere else. When the market becomes less fluid and more loyal we could implement structures that appeal to a more “park and forget” crowd. This will hopefully be something that starts happening in the coming months, but right now it won’t work (imo).

Long story, and many points need to be worked out a lot more.

I’d be very interested in hearing different opinions or additions/improvements.

9 Likes

I totally agree with that, it accurately reflects my feelings (optimism / worries) about recent and future changes to come.

For me, the withdrawal fee implies a voluntary commitment in the protocol. A form of confidence in the “long term”.
Their elimination and replacement by fees on profits makes us much more dependent on a “short-term” psychology and therefore encourages much more reactivity in the moment.

I really like the idea of ​​allocating a dedicated portion of the rewards for a limited time, in order to highlight and stimulate a particular strategy. This would allow us to reconnect with the notion of commitment I was talking about.

A page turns today, I can’t wait to discover how our attentive devs and our beautiful community will take us to the stars (and to the moon by the way).

3 Likes

I agree completely.
Being fully dependent on profit fees means we have to ruthlessly guard the bottom line.
Focus on high yield strategies where we get a larger slice of the pie is paramount.
TVL is just a number, it means nothing if we can’t monetize it.

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Correct me if I’m wrong but I don’t think this is accurate. More TVL would not be directly correlated with withdraw fees. For example, if the price of Pickle goes up, “TVL” should go up and that has nothing to do with fees. If anything I would say withdraw fees are inversely correlated with TVL. Meaning that less TVL means more people have taken money out of the project and more withdraw fees were generated.

Hey @Raaaababa this is a very interesting post. Although I am from the school of thought that we need to have a ‘Set and Forget’ baked into our strategies, after reading your post i can relate to why we may beed to be merciless in pursuing high yield as everything now literally depends on bringing yield so that it can be taxed and used to keep innovating! I guess like you said, this space is not really ready for smaller scale investors who are more likely to ‘Set & Forget’ and also tend to be really loyal to a project once they have found it reliable, safe and reasonably profitable. Lets see where we go, its pretty early days I guess, but in the next couple of weeks with UNI rewards possibly stopping it will be interesting to see what really happens to this space!

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I guess it depends on what the definition of TVL is. I view the capital in our jars as our TVL, because that’s the capital we get fees from. Withdrawal fees are future income, and correlated with the rise in TVL in a way… if that makes sense.