[Idea] Improved Fee Model for TrueFi

[ryan.rodenbaugh]

Introduction

Wallfacer Labs would like to propose changes to TrueFi’s fee model today, informed by research we recently published on Centrifuge’s new newly proposed fee model and the fee models of other leading credit protocols. You can find the full research piece on our Substack.

In our research, we found that TrueFi is charging among the lowest overall fees today with its current platform fee at 0.50%. Maple, Goldfinch, and Credix are able to generate more fees by charging performance fees, taking a cut of interest earned in high-yield pools.

We believe that TrueFi can make its fee model the most user-friendly and the most sustainable in the industry by introducing two changes, which we detail below.

Objectives:

1. Offer a price-competitive option that allows new managers to try TrueFi with little risk.
2. Give high-quality portfolio managers the opportunity to scale with TrueFi, without feeling like fees are too extractive.
3. Help TrueFi achieve financial sustainability by generating performance fees that managers & lenders are willing to pay.

Proposal:

Today we have two proposals we wish to get feedback on.

1. Change the fee from a flat 50bps platform fee to a scaled protocol fee model.

• Smaller pools (< $5 million) pay no platform fee
• As pools grow >$5 million, they pay 50bps (0.50%) on all TVL exceeding $5mm
• Pools that reach >$100mm TVL see reduced fees as they grow further

Note: There are still technical considerations to be weighed in how exactly we implement this model, so do not take this as the final solution, just a close approximation of the direction we would like to move.

2. Charge a 5% performance fee on the interest generated in the junior-most tranche of multi-tranche credit vaults.

• Today, this is the most common type of fee charged by credit protocols with Credix and Goldfinch charging 10%, and Maple charging 2.5% on all capital returned.
• We propose introducing this fee only on the junior-most tranche of a structured credit vault because these tranches typically offer higher yields comparable to the opportunities available on Goldfinch and Credix. If the vault is unitranche, then no performance fee would be charged.
• We believe performance fees could represent as much as 30-40% of total revenue over the long-term if these lower tranches come to make up a significant portion of TrueFi TVL (~20-30%).

You can make a copy of the attached spreadsheet and play around with different values. The relevant tab is called “Simplified Fee Model”.

You can find a video walkthrough by @tylerw here.

There are two hidden tabs in this spreadsheet as well where you can see some former models we played around with.

Let us know your thoughts. We would love feedback from lenders, managers, borrowers, and token holders on this new model before moving to a formal proposal.

[TylerEther]

I think this is a great idea, thanks for coming up with it @ryan.rodenbaugh and @tylerw!

Onboarding is expensive, so anything to make it cost less is a win. This idea can allow new managers to try on-chain portfolios, maybe for the first time, and hopefully, they’ll become hooked on the user experience. They’ll start paying fees once they achieve traction and these fees will continually decrease as they bring more capital to the protocol.

[Vertex]

I dont this that would help people default less often

[nicole_maffeo]

I liked the substack write up a lot - thanks. Agree with @TylerEther that making onboarding easy + flexible is the most important thing. Scaled fees encourage that user onboarding, help build user trust, signal confidence in the protocol’s value prop long term.

[Marcus_Leanos]

This is a great proposal and highly relevant as more RWA deal flow has approached the platform. To us, a 0.50% static fee rate constrains our ability to capture both subscale, emerging credit deals as well as large-scale, lower risk deals. This is a thoughtful approach that takes into account the needs of the protocol long-term.

The 5% performance fee on junior credit vaults also makes a lot of sense and perhaps could be expanded in the future. At the end of the day, most junior credit vaults in DeFi today are running at extremely high rates of return so it makes sense to capture a piece of the value accretion the protocol is enabling. I don’t think this would deter new managers by muddling their economics.

[hiftikha]

lets do this! what can I help with?

[ryan.rodenbaugh]

Welcome! Would love any specific feedback you have on the proposal.

As it stands now, we’re intending to spec it out more on the product side (as is) and then move into development!

[hiftikha]

Is there a source of truth for the proposal specifications? Or I’m guessing it is this post

[ryan.rodenbaugh]

Yep! This post inclusive of the spreadsheet (Fee Comparison - Google Sheets)

Tab 3 and 4 are the best points of reference. Tab 4 was recently created and refined by @barrutko

[Sanctus]

So, this proposal as composed seems a bit like a no brainer. I guess the question is what are the potential downsides?

At first glance it seems you want to offer basic three basic pricing tiers to afford for:

1. A greater UA funnel, lower fees for small pools (onramp)
2. A scaling discount to facilitate user retention as a function of TVL size (stickiness)
3. Ongoing performance fees (support opex)

What is the plan to adjust fees if the current hypothesis doesn’t pan out?

While we cannot have a proper control in a field experiment like this, what quantitative metrics would we hope to hit in 6 months vs today if you would expect this to be successful?

ie. How would we evaluate the success (or failure ) of this fee proposal?

[joey24]

Nicee …i agree on the proposal