Summary
This proposal recommends removing the loan origination fee across all markets.
Over the past several months, borrowing activity across the protocol has remained relatively subdued. Reducing friction for borrowers is therefore expected to improve the competitiveness of Liqwid’s lending markets and encourage greater capital utilization.
The recent experience with the USDCx market provides encouraging evidence in support of this approach. Following the removal of the loan origination fee and a reduction in borrowing interest rates for USDCx, total outstanding debt in the market increased from approximately $673.17k on 6 June 2026 to $798.99k on 17 June 2026, representing growth of nearly 19%.
While multiple factors may have contributed to this increase, the results suggest that lowering the upfront cost of borrowing can stimulate demand and improve protocol utilization. Extending this policy across all markets may similarly encourage borrowing activity and support healthier market growth.
Motivation
Loan origination fees increase the effective cost of opening or expanding a borrowing position. Although they generate protocol revenue, they also create friction that may discourage users from borrowing, particularly for smaller positions or short-term use cases.
This friction is especially relevant for short-duration DeFi strategies such as arbitrage, temporary yield loops, basis trades, or trades seeking to capture asset discounts or premiums. These strategies often operate on relatively thin margins over short holding periods, meaning an upfront origination fee can materially reduce or eliminate their profitability. As a result, otherwise beneficial borrowing activity may never occur.
Given the current borrowing environment, prioritizing market growth and utilization may provide greater long-term value than collecting modest upfront fees on relatively limited borrowing volume.
Removing origination fees simplifies the borrowing experience, makes borrowing costs more transparent, and improves Liqwid’s competitiveness relative to other lending protocols.
Supporting observations
The USDCx market provides a useful recent case study.
Following the removal of the loan origination fee and reductions in borrowing interest rates, total debt outstanding increased from $673.17k on 6 June 2026 to $798.99k on 17 June 2026. Although this change cannot be be attributed solely to the fee reduction, it demonstrates that lowering borrowing costs can coincide with meaningful growth in utilization.
Increased borrowing activity may also benefit suppliers by improving capital efficiency and generating additional interest revenue over time.
Revenue considerations
Removing the loan origination fee does not imply that short-lived loans generate no protocol revenue.
Liqwid’s minInterest mechanism requires that every loan repays at least a minimum amount of interest - currently 0.08% of principal - before it can be closed (except in the case of liquidation). Consequently, even borrowers engaging in very short-term strategies continue to contribute revenue to the protocol through this minimum interest requirement.
By eliminating the upfront origination fee while retaining the minimum interest floor, Liqwid can encourage additional borrowing activity without entirely foregoing revenue from short-duration positions.
Measuring success
To better evaluate the impact of this change, debt volume should be monitored as a key performance indicator (KPI) alongside total debt outstanding, utilization and projected annualized interest revenue.
While TVL and outstanding debt remain useful metrics, tracking cumulative borrowing volume would provide greater visibility into how frequently capital is being deployed and repaid. This is particularly relevant for arbitrage and other short-term strategies that may generate significant protocol activity despite maintaining relatively modest outstanding debt balances.
Monitoring debt volume over time would help governance assess whether removing loan origination fees successfully encourages additional economic activity and whether any resulting increase in utilization compensates for the reduction in upfront fee revenue.
Proposed changes
If this proposal is approved, the Parameter Committee shall:
-
Set the loan origination fee to 0% for all borrowing markets on the protocol.
-
Leave all other market parameters, including interest rate curves, collateral requirements, and liquidation thresholds, unchanged unless modified through separate governance proposals.
-
Continue monitoring borrowing activity, protocol revenue, total outstanding debt, and debt volume following implementation to evaluate the long-term impact of the change.
Expected benefits
-
Reduce friction for new and existing borrowers.
-
Improve the competitiveness of Liqwid lending markets.
-
Encourage greater utilization of idle liquidity across the protocol.
-
Enable economically efficient short-term strategies that may otherwise be discouraged by upfront borrowing costs.
-
Support higher borrowing activity and potentially greater long-term interest revenue.
-
Simplify the borrowing experience by eliminating upfront loan origination costs.
Conclusion
The primary challenge facing many Liqwid markets today is not excessive borrowing but insufficient borrowing demand. In such an environment, minimizing unnecessary costs for users can help improve market activity and protocol utilization.
The recent performance of the USDCx market - from $673.17k in outstanding debt on 6 June 2026 to $798.99k on 17 June 2026 following the reduction in borrowing costs - suggests that making borrowing more attractive can have a positive effect on market utilization.
Combined with Liqwid’s existing minInterest mechanism, which ensures every non-liquidated loan contributes a minimum amount of interest revenue, removing loan origination fees represents a balanced approach to encouraging greater borrowing activity while preserving protocol economics.
Do you support this temperature check?
- Yes
- No