Mainnet Launch: All Liqwid v2 Features (Aqueduct, Tap, v2 API, v2 app) and Introduction of Loan Origination Fee

Summary of upcoming changes coming to the protocol as part of Liqwid v2: Liqwid v2 Overview - by Liqwid Labs💧 - Liqwid Letters

*This article does not include Tap (Liqwid transaction building library integrated with our new infrastructure) a major performance improvement that optimizes how Liqwid market actions, staking and governance transactions are built and submitted using a local library to significantly speed up the data querying needed to build and submit Liqwid transactions.

In previous proposals the Liqwid community voted to support new market launches with Liqwid v2 risk control borrow cap and supply caps configured to a market’s liquidity profile as outlined in the Cardano native token risk assessment model created by the Liqwid core team.

With the upcoming completion of integration and testing for Aqueduct and Tap, the final step before mainnet launch would be the successful onchain vote to deploy these and all remaining v2 components. Aqueduct and Tap are two of the largest components of Liqwid v2, alongside these a new v2 app UI and API will also be launching. Liqwid Labs engineers rebuilt the entire Liqwid v1 offchain and replaced CTL with Lucid to optimize the performance of the app and API. Besides the major UX improvements other benefits of Aqueduct and Tap include a significant reduction in Tx errors from UTXO contention (common error type) and greatly improved devX allowing our engineers to more easily add/test new features and debug Tx errors.

As part of Liqwid v2 the protocol’s loan fee structure has been updated to include the option to implement a loan origination fee for all newly created debt positions. The loan origination fee was inspired from community members who noted other CDP/lending protocols on Cardano have significant minInterest fees and CDP fees that contribute major % of their monthly protocol revenue. To date Liqwid charges 0 loan origination fee and a minor 0.08% minInterest fee on all loans (borrowers only pay either the 0.08% minInterest fee OR their loan’s actual accrued interest amount if it is > 0.08% of the borrowed amount, never both) which has essentially no impact as most loans accrue more than 0.08% interest on their principal.

As part of Liqwid v2 and built into Aqueduct we propose introducing a 1% loan origination fee on all new loans starting at the mainnet launch of Aqueduct, Tap, v2 API and the v2 app. If passed this origination fee will not affect active loans in the protocol, only new loans would be impacted.

Options for allocating the loan origination fee:
option 1: No loan origination fee
option 2: 100% to LQ stakers
option 3: 100% to DAO treasury
option 4: 100% to lenders in that market
option 5: 50% to LQ stakers, 50% to DAO treasury
option 6: 50% lenders, 50% LQ stakers
option 7: 50% lenders, 50% to DAO treasury
option 8: 33.3% each to lenders, LQ stakers, DAO treasury

Do you support the launch of all Liqwid v2 features and improvements?

  • Yes
  • No
0 voters

Which loan origination fee allocation option do you support most?

  • No loan origination fee
  • 100% to LQ stakers
  • 100% to DAO treasury
  • 100% to lenders
  • 50% to LQ stakers, 50% to DAO treasury
  • 50% lenders, 50% LQ stakers
  • 50% to lenders, 50% to DAO treasury
  • 33.3% each to lenders, LQ stakers, DAO treasury
0 voters
1 Like

this is an easy Yes vote

Im a liquidator myself and have managed to liquidate 3-5 loans in the past. For me, it’s a clear no-vote as it will become harder to get hold of the assets needed for liquidation. I understand that some of you have mentioned it’s cheap to acquire assets from a centralized or decentralized exchange, but liquidators will be exposed to significant volatility compared to simply borrowing the asset needed for liquidations. Especially if they plan to trade it back on a failed liquidation, as I would.

Here’s how the current process works for me:

  1. A loan approaches the liquidation threshold.
  2. I borrow the asset, hoping to liquidate it and pay only the minimum fee of currently 0.08%.

3 a: If I manage to liquidate the loan, I make a nice profit.
3.b: If another liquidator is faster or the healthfactor rises again, I have to repay the loan and pay the small minimum fee.

This scenario is manageable with low fees (the current minimum fee). However, introducing an origination fee would likely drive me out of the liquidation business for assets I don’t own, as it becomes prohibitively expensive when I’m only able to liquidate about 5% of the loans for which I borrow assets.

So, would swapping assets via a DEX be suitable? Definitely not, because the potential volatility could be extreme, and failing to liquidate the loan might result in much greater losses with this strategy.

Furthermore, I’ve noticed that the count of loans has been decreasing. I remember when there were more than 52+ pages of loans available (in the app), and now we are sitting at 37. This decrease suggests to me that introducing additional fees would not attract new users.

4 Likes

No Loan origination fee please.

The best protocols work because the protocols are the best. Not because of fee structures. Liqwid is for smooth lending and borrowing. Imposing a fee to squeeze out more from protocol users will make the usability worse.

INDY has a fixed fee on CPD withdrawals. But NO interest. Liqwid’s fee is from interest. The two are different things. So it makes sense to have different fee structures. Do other Lending protocols have “loan origination fees” ? Afaik not. Aave for example hast not, fluidtokens? Lenfi?

So yeah… Not a good Idea in my opinion. Let’s not make the protocol worse. Let’s instead be the best protocol for lending and borrowing. Liquidity will come over time. And with it more value to LQ holders. ( Quite a lot of my portfolio is LQ too)

5 Likes

I’m strongly against origination fee for multiple reasons.

  1. I genuinely believe there is a market for people to get flash loans to acquire, for instance, voting power. Setting or increasing an origination fee, will push such people to look for alternatives. A good user experience will make such customers to come back
  2. I’m a professional liquidator, I have dozen of loans liquidated under my belt, half of which have been executed using tokens I don’t currently own, but borrowed from liqwid. Should origination fees be introduced (or increased) will force me to just liquidate loans I currently own the tokens, and they would be ada, djed, shen and iUSD. There is no way I’m gonna either pay the origination fee OR trade tokens on DEXes exposing myself to impermanent loss and volatility just to be able to participate (w/o being guaranteeed to win the liquidation) in a liquidation. I believe this is what many bot operators think too and might lead to some bad loans to hang around for a while before being liquidated. You could argue manual liquidation might come in help, but you won’t know how long a bad loan will hang around.

I and other operators have built professional infrastructure to keep Liqwid Finance bad loans free. In this first year of operation you’ve seen the results of our work. I invite the community to vote carefully and ensure that all decisions are not just quick wins but will work for the protocol also on the long run.

Thanks

5 Likes

just asking to confirm, the 1% origination fee is of the debt principle, and not 1% taken from interest repaid?

Pasting my input from a private discussion:

I would personally postpone the origination fee until after there is more fiat liquidity on Cardano DeFi: reason is to make loans more attractive, get more users to use Liqwid.

Afterwards, I would tend to go for with the 50-50 Dao-LQ stakers split.

There’s one more argument against the fee:

I remember the absence of fees allowed the boom of third-party “vaults” and “yield optimizers” on Ethereum and particularly BSC that also benefitted from low transaction fees.
They require high-frequency adjustment of positions to optimize yields and an origination fee would disincentivize this.

We haven’t had a Cardano DeFi summer yet, but wouldn’t be bad for protocol use if those third-party apps popped up. The missed revenue from the origination fee would be made up by more repaid interest.

6 Likes

I don’t like having to borrow money and lose money. You can get 0.5% after the transaction ends

Option 1: No loan origination fee

  • Pros: No additional cost for borrowers, potentially encouraging higher borrowing activity and protocol usage.
  • Cons: No new revenue stream for the protocol, potentially hindering future development and maintenance.

Options 2 & 3: 100% to single beneficiary (LQ stakers or DAO treasury)

  • Pros: Concentrates the benefit on a specific group, potentially incentivizing their continued participation in the protocol.
  • Cons: May not be seen as fair or balanced by other stakeholders (lenders, LQ holders who don’t stake).

Option 4: 100% to lenders

  • Pros: Directly benefits borrowers by reducing their borrowing costs.
  • Cons: Doesn’t provide any revenue stream for the protocol or reward LQ stakers.

Options 5, 6, & 7: Splitting the fee between different beneficiaries

  • Pros: Attempts to balance the benefits across different stakeholder groups.
  • Cons: The specific allocation percentages (50/50, 50/25/25) might not be seen as fair or optimal by everyone.

Option 8: Equal allocation to all three groups (LQ stakers, DAO treasury, lenders)

  • Pros: Aims for the most balanced distribution of benefits across all stakeholders.
  • Cons: Each group receives a smaller share compared to options allocating 100% to one group.
1 Like

not potentially. Definetly!

For the loan fee. Logically, it makes zero sense; by default, it’s unnecessary.
It’s option 1: no fee for me.
If revenue were needed, the proposal for a loan fee would be sent to DAO to keep the protocol running, to LQ stakers to keep them staking, or to suppliers to keep them supplying. However, since neither is decided on what the fee would be used for, it shows that this loan feature is not needed for the protocol’s health.
If it needs to be written into the logic for future use, that makes sense. It also makes sense to have a loan fee when it originates and then has that exact fee amount as a credit back at repayment. This would generate slightly more interest. Also, give suppliers, DAOs, and LQ stakers revenue while waiting for repayment. Also, allow for the fee to be waived in competitive environments. Fee waivers in TradFI are standard practice to leverage as needed.
A loan fee is currently proposed for extra revenue that does not have a realized final destination. This is a No vote for me.

4 Likes

Yes to V2, No to origination fee for me. Though looks like I’m a bit late and a bit out-voted on the proposal. Seems like the big LQ holders are intent on pushing this through for increased staking revenue as evidenced by the current 700k Yes to 50k No fee votes. Surprising considering the ~55/45 split here in the forum.

Not the end of the world, but why 1% instead of .5%? Also not enthusiastic about the added risk for bot liquidators. This will undoubtedly pass with the fee, since the vote ends in 8 hours… I guess we will see the result. But personally I think we should strive to remain as fee-less as possible instead of making borrowing slightly less appealing in the name of increasing staking/DAO revenue.

2 Likes