Draft CIP-05 - To increase coverage fees from 0.1% to 0.3%

Background

COVER is a governance token of a protocol that is completing the open-finance puzzle: Unstoppable coverage; protecting participants against unexpected incidents.

COVER v1.1 by Andre Cronje

  • Perpetual coverage (audit is done, pending to launch)

COVER v2 by the team

  • Specific, isolated risk within protocols (ex: each Yearn vault can have its own covToken coverage)
  • Bundled protocols (ex: CurveAaveYearn bundle)
  • Amplified liquidity
  • Dynamic fees
  • Expansion into real-world coverage (multiple CVC groups)

xCOVER implementation by the team

  • Staking for COVER and get xCOVER
  • Fees from Cover Protocol will be used to buy back COVER from the market
  • COVER which are bought back will be distributed to xCOVER holders

COVER integration with Yearn v2

  • Integration with COVER API
  • Supported Cover Protocol lists updates automatically
  • Supports price/purchasing slippage calculations

Summary

While waiting for further releases on the above (Q1 - early Q2 2021) COVER holders can align the fees revision for Cover Protocol which is currently set at 0.1% to 0.3%. The result of this proposal can be revisited whenever major changes affect the protocol or its governance holders.

Motivation

  • The current fees being set at 0.1% for coverage is sought to be rather low and insignificant. The fees should be revised to 0.3% which makes it more reasonable as compared to Cover Protocol’s competitor such as Nexus Mutual.
  • A slightly higher fee structure is beneficial for the entire Cover Protocol’s ecosystem as well because it will generate more revenue and increase the treasury.

Specifications

  • Increasing the fee structure from 0.1% to 0.3%.
  • Increasing the fee structure from 0.1% to 0.2%.
  • Do nothing.
  • Increasing the fee structure from 0.1% to 0.3%.
  • Increasing the fee structure from 0.1% to 0.2%.
  • Do nothing.

0 voters

3 Likes

I think it is a good idea to increase the fees to something a little higher than 0.1%. It seems low compared to other platforms. I agree this will benefit us in the long run and is not a large impact on users. I am personally in favor of .2% as .3% is more than double the fee. An increase to .3% may cause a shock factor. An increase to .2% seems like a fair medium.

2 Likes

I would also increase it to 0.2% for now and revote on it after the next expirations.

1 Like

Since the plan is to enact an increase upon successful vote to all coverage right away, I agree that 0.2% is a better choice. Those who chose to use the protocol for its purpose - getting coverage on protocols they’re using - purchased CLAIM with the 0.1% fee statement. Changing the fees on those who chose to use coverage with other conditions can create some negative sentiment with users that the protocol is trying to attract.

I’d be much more in favor of increasing coverage fees for all new Epochs/protocols going forward, as it keeps the expectations consistent amongst all actors within the protocol.

Let us not forget about some of the fee fatigue that can happen within the current version of the protocol as well. If you want to actually add liquidity (which helps bring in larger players) while buying either CLAIM or NOCLAIM, you have to:

  1. Acquire the specified collateral tokens required if not held already - Txn Gas + Slippage + Trade Fees
  2. Exchange collateral to mint CLAIM & NOCLAIM tokens (while likely also approving first) - Txn Gas
  3. Sell the unwanted CLAIM or NOCLAIM tokens (while likely also approving first) - Txn Gas + Slippage + Trade Fees
  4. Redeem CLAIM or NOCLAIM tokens (for successful redemption scenario, likely requires approval first) - Txn Gas + Coverage Fee

I’m not necessarily complaining about the current system, but it helps inform the decision to alter fees when seeing all of the fees that users have to pay into throughout use of the protocol.

Comet, these are notable concerns. However, the flash loan update will significantly reduce gas by combining transactions and reduce slippage to nearly zero, I believe. Given these significant reductions in fees via the flash loans, I think 0.3% is more than reasonable and on par with other protocols. Users do not experience this fee as often as they would trading/swaping via uniswap. This is insurance for an investment within a high risk asset class, 0.3% is more than reasonable and honestly, considerably lower than what could be charged for such a service/product.

Ah, I wasn’t yet aware of the flash loan update being developed! I just read Alan’s short thread on it. Overall a great thread and improvement.

There still will be slippage - any trading with pools results in slippage as a function of trade volume/pool liquidity. I’m sure the flash loan method will be more gas efficient than earlier, but the number of internal txns and other stuff will still limit how efficient it is.

And my primary reason for 0.2% vs 0.3% was fundamentally because the previous purchasers of CLAIM and NOCLAIM tokens entered a sort of agreement when buying the tokens - that they’d pay a 0.1% fee upon redemption, which will occur sometime within the timeframe of the epoch’s expiry (dependent on whether CLAIM or NOCLAIM was chosen). Changing this value is changing the predetermined agreement while it is still playing out. Yes, there is always implied “the DAO can change things as they like”, but that’s exactly why we are having the discussion now. I am still in favor of an increase to 0.2%, but 0.3% is 3x the original agreement that the CLAIM/NOCLAIM token buyers agreed to and seems too abrupt. To reiterate, I am all for 0.3% for all new epochs/protocol coverage going forward, but changing the terms of a preexisting epoch midway through the epoch should heavily consider all parties involved.

Yeah, I agree with what you’re saying regarding those who are actively engaged with the protocol entering under the pretense of 0.1%. - not sure if there is a way to apply the result of this proposal only to new epochs moving forward? have to let @teddy9423 or @Kiwi comment on that.

i also agree with you that a 0.3% fee is good for all new epochs/protocol coverage moving forward.

Technically the fee change will always be in the middle of an expiration as not all expiration align on the same dates. But we do have a warning on the mint page now stating the redemption fee is subject to change via governance.

ok, perhaps scaling the fee increase is a better idea? immediately increase to 0.2% with an increase to 0.3% at XX date? idk if this is common or typical but it would allow users to foresee the fee increase for the future