KILL THE DELTA NEUTRAL - & Move Mirror Protocol fee to 2-3% paid AT minting not closing

UPDATE 7-19-2021: KILLING THE DELTA NEUTRAL STRATEGY ASAP
(I’ve modified the subject of this thread to reflect an even more pressing need here regarding the delta neutral…can moving / adjusting the protocol fee help with this? -maybe. I’d still like to see this tweeked- however we need solutions to make people pick a side in the market - not scoop mir with 0 risk via easy strategies they can learn on youtube. :roll_eyes:)
:arrow_right: Is everyone enjoying the price movement of MIR? I hope not. The question we must ask here is WHO is dumping MIR at these levels? It doesn’t take a genius to figure out these are the large players providing LP on mirror in DELTA NEUTRAL strategies. And why wouldn’t they if they can make 40-70% apy with 0 risk? LOL. Come on this has to end. We can’t let such strategies turn into risk free money printers for whales. Please use this thread as a way to make suggestions to end this madness. Markets need WINNERS and LOSERS - not guaranteed winners at the expense of Mir price!

ORIGINAL POST (re increasing mirror protocol fees & having them paid upfront)
taken from my tweet: https://twitter.com/nachodonUST/status/1415316673679167490?s=20

re: Mirror Protocol & the “delta neutral” catch 22 with mainly downside

tl;dr - mirror protocol v2 should be modified to require minted asset value 1.5% fee to be paid up front rather than at cdp closure, the fee should also be increased to 3% (or thereabouts for the short term)

here’s why:

declining mir governance revenues can be blamed on a number factors - with lower volumes atm likely being the main culprit. but i believe the ability to earn mir rewards on the short side to create a delta neutral strategy is also hurting mir gov rewards generated by cdp fees.

does the fact that so many users might be executing “delta neutral” strategy on mir mean that shorts essentially rarely close since they can be easily balanced by adjustments on long side & cdp collateral?

i think so

wouldn’t it make more sense to req to pay the fee upfront? because otherwise, when does the short side close? & when are the fees going to be paid to the protocol?
-when the mir rewards end or become less interesting?
-when a massive upturn liquidates the position?

now i’m not saying that these fees will not eventually be paid to the protocol …but why allow them to be paid at potentially such a later date when the protocol is offering them the equivalent of “free money” (& fast / immediate) to take this trade?

minimally imo these fees should be paid upfront, and consideration should be made for increasing them…
…the fact is that the ability to delta mainly rewards whale positions extremely handsomely. These large neutral positions do little for the protocol other than send fat rewards to Whales who are likely to dump big mir profits onto the market. Not good!

furthermore-the change to pay fees based on asset price at the close rather than on collateral along the way further benefits the sharpest traders who will pay less fees later on successful net short trades hedged perfectly and profitably by the delta neutral mir reward scheme.

Are you seeing the issue that i am here?

-every change to the fee structure benefits the sharp whale who has more capital than you or me put together and will suck mir rewards out of the system and dump - while kicking the protocol fee can down the road as long as they choose.

I don’t have all the answers here, and maybe I’m missing something fundamental. But clearly the ability to execute this strategy likely comes at Mir’s expense. I just can’t think of how any of this can possibly benefit Mirror/$MIR.

EVER

So, let’s think this through as a community - or feel free to kick me in my nuts and tell me “all is fine” and how much YOU are personally “enjoying” your delta neutral positions - but I’d argue that is extremely shortsighted & certainly not in @mirror_protocol’s best interests

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Thank you for bringing this up, although I am new to Mirror your argument makes perfect sense.
Being unfamiliar with these delta neutral strategies, how long can these positions be held?

If it can go on for weeks or months, how can we be certain that the 2-3% at the beginning will be sufficient to offset their cost to the network?

Would it not be more prudent to derive an Operating fee during the life of the transaction and do away with the opening/closing fees?

From my perspective, a closing fee would make sense for spot trades, but I do not believe it is an appropriate mechanism for what are effectively margin calls

Any feedback is also appreciated

Thank you &Stay Healthy

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Envy on whales is not a good justification for the changes. Increasing the fees means that the strategies become unprofitable and many traders will leave the platform. I think this is not the intention? Why delta neutral position is seen as a sin? I guess that paying fees at closing of cdp is an essential feature of a protocol and changing this could not be easy. The benefit of taking the fees upfront is questionable as well. Do you have any data that backs your suggestion? If the problem is that “whales are selling mir after earning it” then those suggestions do not solve the case. If there would be enough benefits in keeping/staking mir or foreseeable price appreciation, then users won’t dump it to market.

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delta neutral folks can leave for all i care. if that’s all you interested in then start packing your bags. main point on thread is actually 1. to move fees to be paid upfront and not at closure. 2. to discuss possible fee raise… worked well when it was on entire collateral; 1.5% of 200% -still a raise from 1.5% to 3% price of minted assets (100%) would roughly equal to total fee paid in v1 - though with incentives on short side. everyone wins here.
threats about people leaving the platform over higher incentives paid to protocol and mir holders is nonsense. you’re not ‘entitled’ to delta neutral strategy

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Although my comment may / will be unappreciated here goes:
If we have our eyes on actually maintaining and profiting from any of the defi protocols there must be evolving defences implemented within to protect the system itself.
Some whales and others ie highly trained crypto/ traders, institutions and governments some through planned attacks on crypto others just blind greed have and do “break the bank” and then move on to the next protocol to repeat the same outcome. loot and shoot.
I believe as members who vote we are obliged to maintain integrity FIRST. I support any proposal to do this.

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I had mucho $MIR staked and pooled but no rewards now. No good.

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i think whale groups like “Jump Trading” are currently on our side. We can use more whale groups to give them competition. But don’t fool yourself and think that a group like jump isnt playing delta neutral here to their advantage and at mir’s sort term expense. I don’t like it.
that being said i’ll acknowledge that these guys are likely a lot smarter than me and they may have an ultimate plan to PUMP the living F out of MIR so i welcome that, and eagerly still buy the bottoms here… but I really don’t like being at the mercy of broken rule/sets hoping someone eventually has mercy on me. Delta neutral is not Mir’s friend imo

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well fuck it. may as well sell it – we are in the dirt anyway. i’m going to buy your mir most likely since i sell kidneys on the reg and just have my 3D fake meat printer (given to me by Klaus Schwab btw) print me new ones.

Print me one up as well, please?
I want to buy some more of the dip =)

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All this will accomplish is driving the average premium of massets from 1-2% to 2-3%, which is horrible from an optics perspective to potential new users of Mirror. I’d actually vote in favor of slashing the minting fee in half or more. MIR governnance is already paying a relatively large yield and rent-seeking behavior from MIR token holders at this stage is counterproductive to the platform’s growth.

I do think the delta-neutral farmer craze created by short farm rewards is problematic. But, the better way to fix that is to eliminate the short farm rewards. There’s enough data to show that they aren’t effective at fixing the masset premium problem because they can be gamed delta-neutral. The direct route to fixing the premiums is to stop penalizing minters so harshly to pay governance rent.

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Never heard someone with this opinion. Encouraging people to risk liquidation by posting low collateral seems like a bad idea. I payed 1.5% of 600% on my collateral. Hurts pretty bad

Interesting discussion, IMO there is a need for more velocity with regards to the collateral locked in Mirror given how risk free farming is now enabled since V2.

I disagree with @maruboro that the mAsset premium is a dependency of the protocol fee extracted from collateral redemptions, it was more a consequence of extremely high yield provided to long LPs and seems mostly a non-issue nowadays with v2 live.

We do need to run the numbers, but moving away from the current fixed fee to apply a dynamic rate might be a good option.
Ideally you’d encourage people to mint by taxing collateral at < 1.5% if the position is held for less than x days and > 1.5% if over x days.

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uhh no, “dude”, you’ve had too many white russians today. that’s not what i’m suggesting. i’m talking about the FEE paid on the collateral in v1 vs the FEE paid now in v2 which is now paid on the asset amount and NOT the collateral. Again, #1 no reason to pay fee on back end rather than front end (can also provide useful data on how many are short an asset until more dashboards are build out; don’t everyone rush at once to build one of these) and #2 getting fee raised on total asset amount -OR- dynamic tax on collateral as @Sebnondzee suggests - could be another viable path forward.

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the ability to mint in v2 using the dynamic collateral of aUST locked on earn in anchor earning 19.5% apy pretty much obliterates your ‘rent seeking’ argument - as does the ability to mint anything using other mAssets to mint long positions as collateral albeit arguably to a lesser extent. v2 gives us amazing composability and versatility and much lower fees. as a landlord on this network, i’m disappointed - but i guess you want something akin to rent control? not on my mir you don’t. :laughing:

Nachodon, no matter what you are proposing, if you respond to people the way you do, how can you expect to gain any consensus in what you are proposing? You are fundamentally very impolite and the tone of your replies is quite counter to what you are seeking from people. It makes it very hard to even begin to consider what you are proposing. Sorry for bringing that up, but I just skipped any thoughts of replying, because your responses to people views and opinions are just obnoxious?

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Im a big fan of this proposal . I like the idea of paying 1.5% on deposit and then an additional .5% if you withdraw before 14 days. Or maybe scale it a bit more 1% fee before 14 days , .5 % otherwise

Dont want the fees to be too high, and 3% get’s to be a bit unsavory.

Oh and rewards are locked until you close your position. This incentivizes position closure while not hurting long term LP providers

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Too bad you’re too worried about your own lame feelings rather than improving the protocol. The difference between people like me, and snowflakes like you/ is that I actually care.

Delta neutral strategies and spec.finance type systems are both adding to continuous selling of MIR for sure. The only natural buying is through governance rewards, but that APR has almost reduced by 50%

Won’t a simpler solution be to vest the MIR rewards earned for certain period of time and not be available to sell immediately?

One solution could be 25% of rewards vest immediately, and then on a 25% every two months schedule. So, the risk-free strategies have to be vested in the system for at least 6 months.

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I don’t see how it’s even related, let alone “obliterates” the fact that MIR governance does collect fees from massets and that the original post was designed to increase those fees (doubling the rate and making it paid upfront). Those fees create friction and contribute to a premium above the underlying.

Earning 20% annually on the collateral doesn’t change the math for minters; I can just not mint anything and still earn 20% on that cash. The protocol fee and round-turn transaction costs are the hurdle I need to clear to make minting an masset profitable. Higher fees makes minting less attractive and you see that manifest itself in the premium on massets. The short farming rewards were in concept designed to reduce that hurdle, but the execution seems flawed because it’s mostly resulting in delta-neutral farms.

I’m skeptical about @Sebnondzee argument that the positive premium is driven by demand created by high long farming yields. Liquidity on Mirror hasn’t been increasing for quite a while, but the positive masset premium still persists in v2. It’s generally smaller because the fee is charged on the masset value in v2 not the 150%+ collateral value of v1, but it’s still there.

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you’re just proving @BuMQ 's point. No one is going to take you seriously in life if you’re resorting to name calling and ad hominem attacks

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