Governance Temperature Check: Disable Loan Origination Fee for USDCx Market

[Kylix]

Summary

This is a proposal to set the loan origination fee to 0% for the USDCx market on Liqwid Finance to stimulate borrowing demand and improve capital efficiency.

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Motivation

The USDCx market on Liqwid Finance has experienced persistently low borrowing demand relative to its available liquidity. Current utilization rates remain significantly below optimal levels, indicating underused capital and reduced protocol efficiency.

One likely contributing factor is the 1% loan origination fee applied to borrowing activity. In a competitive DeFi landscape, upfront costs can meaningfully deter borrowers - especially in stablecoin markets where margins are typically tight and users are highly sensitive to fees.

Key Observations

• Low utilization: The USDCx pool shows minimal borrowing activity despite ample supplied liquidity.
  

  

• Fee-induced friction: A 1% origination fee creates an immediate cost barrier, reducing the attractiveness of borrowing compared to alternative platforms.

• Competitive disadvantage: Other lending protocols within the Cardano ecosystem have demonstrated stronger USDCx borrowing demand while charging no loan origination fees (source: https://defillama.com/protocols/lending/cardano).

Protocol	Supply	Debt	Utilization
Liqwid	$6.01M	$569.16k	9.46%
Competition	$3.03M	$1.153M	38.05%

• Market trend toward lower fees: Broader industry movements indicate a shift toward reducing user costs to drive adoption and volume (source: https://www.binance.com/en/square/post/315296491343986).
  

  

• Internal market comparison: Among Liqwid’s own markets (DJED, wanUSDC, wanUSDT, USDCx), USDCx exhibits the lowest borrowing demand, despite having comparatively high available liquidity.
  

  

• Interest rate model context: The USDCx market currently operates with the least aggressive interest rate model among Liqwid markets. At first observation, this suggests that lower borrowing demand is not primarily driven by interest rate conditions, as borrowing costs (excluding fees) are comparatively favorable. This further reinforces the hypothesis that the origination fee is a key inhibiting factor.

Taken together, these factors suggest that the current origination fee may be a primary inhibitor of borrowing activity in the USDCx market.

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Specification

This proposal recommends:

• Reducing the loan origination fee for the USDCx market from 1% to 0%
• No changes to other risk parameters (e.g., collateral factors, interest rate curves, liquidation thresholds)
• No changes to origination fees in other markets at this stage

Objectives

• Lower the barrier to entry for borrowers
• Increase utilization of supplied liquidity
• Improve overall market efficiency
• Enhance Liqwid’s competitiveness within the Cardano DeFi ecosystem

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Expected Impact

• Higher borrowing demand: Removing upfront costs should incentivize new and existing users to borrow USDCx
• Improved utilization rates: More efficient capital deployment within the pool
• Increased protocol activity: Higher borrowing volume can lead to greater interest accrual over time, offsetting the removal of origination fee revenue
• Competitive alignment: Brings Liqwid in line with prevailing market standards

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Risks & Considerations

• Short-term revenue reduction: Loss of origination fee income; however, this is expected to be offset by increased borrowing volume
• Behavioral uncertainty: While evidence suggests fees are a deterrent, demand elasticity may vary
• Market-specific change: This proposal targets only USDCx; further adjustments to other markets may be considered based on outcomes

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Forward-Looking Considerations

This proposal can serve as a data-driven pilot for broader fee policy optimization across Liqwid markets.

Depending on the observed impact on utilization, borrow demand, and overall protocol revenue, a future governance proposal may explore reducing or fully disabling loan origination fees across additional markets (e.g., DJED, wanUSDC, wanUSDT). Any such changes would be guided by empirical performance data and risk assessment following this initial adjustment.

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Next Steps

• Gather community feedback and discussion
• Conduct a temperature check vote (off-chain)
• If consensus is positive, proceed to formal governance vote for parameter change
• Monitor post-implementation metrics (utilization, borrow volume, revenue impact)

• Yes, I support this governance temperature check.
• No, I do not support this governance temperature check.

[gil]

While I acknowledge the need for revenue, I’ve been vocal in the past that the 1% loan origination fee prevents some types of activities through Liqwid, mostly shorter plays where % profits can be thin.
Personally, I’ve kept using Liqwid for part of my shorter term DeFi activities only because that fee is at the frontend only.
= If I had to pay that fee, I simply wouldn’t have done a good chunk of the activity I did on Liqwid => so would have been no revenue at all from me instead of some through interests.

Other more long term plays wouldn’t really mind the 1% fee though.

[Kylix]

I agree with this take. When the 1% origination fee was first introduced, it made a lot more sense in context - borrowing demand was relatively strong compared to supply, and fees like that didn’t feel as restrictive. At the time, even comparable larger scale platforms were charging similar fees (around 0.5%), so it was still within a reasonable range and aligned with broader market standards.

But the landscape has clearly shifted. Borrowing activity is down, likely reflecting the more cautious market environment and overall sentiment. On top of that, with competitors now moving to 0% origination fees, the relative cost of using Liqwid stands out much more than it did before.

Given these changes, it feels like a good moment to reassess. Lowering or removing the fee could help re-enable the kind of shorter-term activity you mentioned - which, as you pointed out, still generates revenue that might otherwise be lost entirely.