Summary
11 lenders across Alameda Research Portfolio and Alameda Research Portfolio II paid greater than the expected 0.50% protocol fees during the course of these portfolios.
In order to remedy the situation, this post proposes that the TrueFi Treasury reimburse a total of 19,898 USDC across 11 impacted lenders who paid higher than intended fees.
Background
In TrueFi’s current lending marketplace v1 smart contracts, the pool pays a protocol fee of 0.50% per annum each time a new loan is deployed (for details and an example, see the FAQ here). The most significant portfolios launched on these contracts have been the Alameda Research Portfolio and Alameda Research Portfolio II portfolios, which have originated ~60M USDC in loans to date. These two portfolios were uniquely affected by this issue, where lenders entered the portfolio in multiple windows before and after loans were made.
Description of issue
Last Thursday, June 23 2022, a lender brought to my attention that early lenders in the Alameda portfolio paid a higher share of fees than lenders who entered the portfolio later.
A simple example to demonstrate:
- Lender1 puts $10M into pool
- Portfolio disburses a 10% 1yr, $10M loan →
- Lender1 pays fee of 0.50%*10M = 50k USDC
- Lender2 puts additional $10M into the pool
- Portfolio disburses another 10% 1yr, $10M loan →
- Lender1 pays 0.50%10M(10M/20M) = 25k USDC
- Lender2 pays 0.50%10M(10M/20M) = 25k USDC
- At end of portfolio:
- Lender1 has paid 75k in fees
- Lender2 has paid 25k in fees
As the example shows, an early lender can potentially pay a higher share of fees than later lenders and thus see lower returns than expected.
In the first Alameda portfolio, some lenders paid higher fees and saw returns of 5-6%, while most had returns ~7%. This should not have been the case.
Proposed solution
Immediate actions:
To mitigate further issues and remedy this situation, following actions are proposed:
- Set protocol fees to negligible amount (1bps) for active portfolios on v1 “Ragnarok” smart contracts (via set newFee).
- Reimburse lenders such that no lender pays over 0.50% in protocol fees. A total of 19,898 USDC should be distributed from the TrueFi Treasury (0x2a5c) which currently holds ~68k USDC earned from protocol fees. Distribution details as follows:
- Alameda Research Portfolio: 10 impacted lenders, total reimbursement of 16,052 USDC (detailed calculations here)
- Alameda Research Portfolio II: 1 impacted lender, total reimbursement of 3,847 USDC. (detailed calculations here)
Long term solution:
Moving forward, new portfolios will be launched on TrueFi’s next iteration of smart contracts, which handle the payment of fees more clearly. In these contracts, lenders pay flat protocol fees and portfolio fees at the time a lender puts capital into the portfolio. Fees will be clearly shown in the lender UI flow, so that lenders can easily account for fees and accrued interest. These upcoming features will ensure that lenders do not pay unexpected or disproportionate fees.
Next steps
Please leave feedback in this thread. If there are no major objections, this proposal will move to Snapshot vote for community approval later today.