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# System prepended metadata

title: eBTC Fees Research Document

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# eBTC Fees Research Document

## Fees Charged by Liquity Protocol
- For borrowers, there is a borrowing fee on loans as a percentage of the drawn amount (in LUSD).
- For redeemers, there is a redemption fee on the amount paid to users by the system (in ETH) when exchanging LUSD for ETH. Note that redemption is separate from repaying your loan as a borrower, which is free of charge.

Note that Liquity doesn't have a DAO or any form of governance, and the protocol itself doesn't get any revenue from fees. Fees are distributed among $LQTY stakers, which itself is an incentive token for $LUSD stakers.

Ref: https://docs.liquity.org/faq/general#does-liquity-charge-any-fees

#### Open questions:
1. Do we want to charge fees on both "ETH -> eBTC" and "eBTC -> ETH"?
2. Where do fees go?
    a. $EBTC stakers (stability pool)? $EBTC_GOV token stakers? $BADGER stakers? NFT??
    b. Emergency fund/reserve? How would that be governed?
    c. Badger DAO treasury

## Fees as a Stability Mechanism

**Redemption fee formula:** `(baseRate + 0.5%) * ETHdrawn`, capped at 5%.

![](https://i.imgur.com/dyZKggV.png)

The higher the redeeming volume, the higher the fees. This is done to stabilize the protocol and disincentivize borrowers to redeem all at the same time.

## Fees as Revenue

Assuming the fees charged by the eBTC protocol stay in the protocol itself, Badger DAO could monetise on eBTC by building vaults on top of the eBTC protocol, and charge fees on those vaults.

#### How much TVL do we need to be sustainable?
Currently, average APY on Badger DAO's vaults is `10.29%`. Assuming a performance fee of `20%` on all vaults, that means that yearly performance fees are equal to `~2%` of the TVL.

Withdrawals are more difficult to predict, but YTD withdrawal fees have been about half of the performance fees. Yearly withdrawal fees are then equal to `~1%` of the TVL.

With a estimated burn rate of $250k per month---or $3m per year, that means **Badger DAO should maintain a TVL of at least $100m** at all times ($2m performance fees and $1m withdrawal fees).

Note that this is the bare minimum, and does not account for costs made using the $BADGER token, unforseen costs, changes in FX rates, etc.

Ref: https://docs.google.com/spreadsheets/d/1RpgVTTCDg1L3h5Udev_op-Ya5yhR9t7-bQNV1gETpfc/edit?usp=sharing

## Fees Simulation

Ref: https://github.com/Badger-Finance/badger-influence-analytics/blob/master/notebooks/ebtc_research/fees_research.ipynb
