IIP-157: Reduce icETH Fees


IIP: 157
Title: Reduce icETH Fees
Status: Proposed
Author: @Matthew_Graham and @funkmasterflex
Reviewer: @afromac
Date: 17/06/2022


Simple Summary

This proposal presents the opportunity to INDEX holders to reduce the icETH Redeem fee from 25bps to 0bps

Abstract

In the current fee structure on icETH is as shown below:

Streaming Fee: 75bps
Mint Fee: 0bps
Redeem Fee: 25bps

After additional market research and collecting feedback from core customer categories, we would like to propose that each of these fees be reduced to…

Streaming Fee: 75bps
Mint Fee: 0bps
Redeem Fee: 0bps

Reducing these fees will lead to a better user experience whereby users don’t forgo weeks/months of accrued yield when redeeming the icETH position.

Motivation

Market research has indicated one of the largest barriers to purchasing icETH at size is the redeem fees. This proposal removes the redeem fee and will enable the product to more accurately track the Net Asset Value (NAV) as arbitrage traders do not need to allow for the redeem fee upon interacting with the exchange issuance module.

After further market validation, we believe that reducing the redeem fee will have a positive impact on N$F from large buyers and protocol integrations. Large buyers, whether whales, hedge funds, DAOs, or asset managers have shown pushback on the mint/redeem fees and the effect of the fee on product yield.

Considering recent NAV decay from rebalancing and current market conditions, further fees to get out of the position will continue to be a major hurdle for large potential buyers. In addition, we expect to see an uptick in N$F with the nearing completion of the icETH ERC-4626 wrapper. These types of yield integrations are very competitive and sensitive to fees. Any advantage in yield will have a major impact on the adoption of this strategy and the 0 bps redeem fee makes it a much easier integration.

Specification

icETH fees will be amended to reflect the below. This change will be implemented by @edward’s team shortly after the proposal passes a community snapshot vote.

Streaming Fee: 75bps
Mint Fee: 0bps
Redeem Fee: 0bps

Voting

FOR: Eliminate 25 basis points Redeem Fee for ic ETH in accordance with specification.

AGAINST: Make no change to icETH fee structure.

Copyright

Copyright and related rights waived via CC0 .

15 Likes

I strongly support this proposal. Good work @Matthew_Graham and @funkmasterflex.

8 Likes

Originally I was opposed but have since come around and think this is a net benefit to the product, user and IC. Reason being is that I think it is likely large users such as treasuries etc may want to use these types of structured products over short time frames but frequently and therefore any mint and/or redemption fees creates an overbearing friction voiding the economic value of the product.

Thanks to @Matthew_Graham and @funkmasterflex for putting in the ground work and communicating the feedback.

What do we need to do now to push to IIP?

6 Likes

I’m also in favour of reducing mint / redeem fees on icETH (and other long term hold products) to zero, for different reasons than the original proposal from @Matthew_Graham and @funkmasterflex

My thought is about composability, and getting people to build on top of our products.

For icETH, I’m thinking of late 2023 when the merge is complete and ETH can be unstaked from the contract. stETH will return to being close to 1:1 with ETH (without LDO incentives).

At this point, the risk of stETH ratio is removed and icETH becomes a leveraged staking reward (and not a leveraged play on the stETH ratio:roll_eyes:). Thus icETH becomes a much more attractive yield source for others to use and build on. We will also have 12+ months of our contracts holding AUM and demonstrating performance.

I think having a mint / redeem fee makes out products less attractive for others to build on (particularly if they are bypassign Dex pools and integrating issuance / redemption).

(e.g. e build FLI and icETH on Compound and AAVE. Would we have built them if they had an exit fee? - How much sticky AUM have we delivered to compound and AAVE?)

Getting others to build on top of our products (Alchemix, AAVE, Vesper, Yearn), generates sticky AUM. Both help the coop grow AUM and lindy. These integrations take time to build, deploy and demonstrate lindy.

So the sooner other protocols start building on top of our products the better. Removing the M/R fee will remove a barrier to such integrations.

9 Likes

I also support the elimination of the redeem fee. Will queue up the snapshot soon and share the details here!

@GovNest can we please have an IIP number assigned to this proposal?

5 Likes

Gm @allan.g, @Matthew_Graham, @funkmasterflex -

This has been reviewed and IIP number 157 assigned. I have added the voting spec for clarity. Once you’re satisfied that sufficient discussion has elapsed and 48-hours from the parent comment have elapsed you may post this to snapshot. Good luck with your proposal and thank you for continuing to innovate at The Coop!

1 Like

Thank you, @mel.eth!

The Snapshot has been queued up here, with voting to begin at 17:00 UTC today.

1 Like

The snapshot vote has passed with 581k INDEX voting FOR removal of the redemption fee.

This fee change will go into effect on July 6th, 2022.

3 Likes