Given the recent discussions around applying a fee cap to all inventory sources (similar to orderbook) and the revisit of protocol fee allocation that was agreed upon in 2023, the below is a draft of the proposed fee changes to the protocol, to ideally be implement in April during our Premia v3.1 “Decoupling” upgrade that is currently being audited, or sooner if desired. To be discussed in the coming week before being added as a snapshot vote for ratification.
TLDR;
- Referrall Fees from 50% to Tiered (starting with 5%) and managed by the Premia Parliament for advanced Tiers (Affiliate Program)
- Allocation Percentages to change for Trading Fees Only from 80/20 to 50/50 split between vxPremia and Operator.
- Trading Fees to decrease across the board to closer match CEX levels, imposing a cap on all inventory sources and imposing 2 fee classification types based on the token pair.
---
p3: 8
network: [Arbitrum]
title: Sustainable Premia Fee Schedule and Distribution Enhancement
status: WIP3
mod status: NA
author: DK (@dk3)
mod: DK (@dk3)
sponsor: DK (@dk3)
created: 2024-03-11T00:00:00.000Z
proposal: NA
type: Task
group: NA
---
Summary
This proposal aims to update Premia’s fee schedule and distribution model to better align incentives, ensure protocol sustainability, and provide a competitive fee structure for users.
Abstract
Premia’s current fee schedule and distribution require adjustments to optimize the ecosystem for all stakeholders. The proposed changes include updates to trading fees based on asset type, a new fee split between vxPREMIA holders and the Premia Treasury, and a tiered referral fee structure as the introductory period has concluded.
Motivation
The current fee model can be improved to better serve users and the long-term sustainability of the Premia protocol. By adjusting the fee distribution to allocate a higher percentage of trading fees to the Operator Treasury, Premia can ensure sustainable funding for protocol development and ecosystem growth. This reallocation is crucial for the long-term success and competitiveness of the protocol.
Importantly, the proposed changes will not affect the distribution of Options Liquidity Mining (OLM) fees, which currently make up a significant portion of the fees distributed to vxPREMIA tokenholders. By maintaining the existing OLM fee distribution, vxPREMIA holders can continue to receive a steady return, even as a larger share of trading fees is allocated to the Treasury.
Furthermore, implementing a more nuanced fee schedule based on asset types will allow Premia to remain competitive in the market while starting progress towards generating sufficient revenue to support ongoing development and operations.
Specification
-
Update Fee Schedule:
- Introduce different fee rates for “Major or Stable” and “Other” assets across various fee categories, as shown in the table below:
Fee Category Major or Stable Other Maximum Fee Orderbook Taker Fee 0.04% 0.08% 12.50% of Premium Orderbook Maker Fee 0.04% 0.08% 12.50% of Premium Vault Taker Fee (Premia) 0.16% 0.32% 18.00% of Premium Vault Taker Fee (3rd-Party) 0.08% 0.16% 18.00% of Premium Exercise Fee (Long) 0.04% 0.08% 12.50% of Intrinsic Value - Implement maximum fee caps as a percentage of the option’s premium or intrinsic value.
-
Adjust Fee Distribution:
- Change the split of Trading Fees from 80% vxPREMIA / 20% Treasury to a 50% vxPREMIA / 50% Treasury split, as shown in the table below:
Fee Category Current Distribution Proposed Distribution Trading Fees 80% vxPREMIA / 20% Treasury 50% vxPREMIA / 50% Treasury OLM Fees 90% vxPREMIA / 10% Parliament 90% vxPREMIA / 10% Parliament Exercise Fees 100% Treasury 100% Treasury Vault Fees 100% Treasury 100% Treasury -
Modify Referral Fee Structure:
- Revert the referral fee from the current 50% introductory rate to a tiered structure.
- Implement different referral fee tiers starting at 5% (exact tiers and rates to be determined).
Rationale
The proposed changes are designed to strike a balance between offering competitive fees, incentivizing liquidity provision and protocol growth, and ensuring the long-term sustainability of the Premia ecosystem. By allocating a higher percentage of trading fees to the Operator Treasury, Premia can secure the resources needed for ongoing development, partnerships, and other growth initiatives that are essential for the protocol’s success in an increasingly competitive landscape.
Maintaining the current OLM fee distribution ensures that vxPREMIA tokenholders continue to receive a stable return, as OLM fees make up a significant portion of the total fees generated by the protocol. This approach balances the need for sustainable protocol development with the importance of providing attractive incentives for tokenholders.
Test Cases (Currently being Audited)
- Verify correct fee amounts are charged for various trade types and asset classes.
- Ensure fees are properly distributed to vxPREMIA holders and the Treasury based on the updated split.
- Test referral fee tracking and payout based on the new tiered structure.
Copyright Waiver
Copyright and related rights waived via CC0.