Mint position (CDP) Holding fee vs Current Closing Fee

Purpose
To ensure a more constant flow of rewards for MIR stakers by changing the current CDP closing fee (Protocol Fee) structure.

Current Protocol Fee
Currently, Mirror Protocol charges a Protocol Fee of 1.5% from collateral for all CDP/Mint Positions that are being closed. The Protocol Fee is collected and distributed as below:

  1. 1.5% of protocol fee is sent to a contract called “Collector”
  2. “Collector” contract converts all gathered fee into MIR through a swap
  3. Swapped MIR is distributed to all MIR stakers ( not MIR-UST LP) based on their weight

Problems with the current fee model
The problem with the current Protocol Fee model is that,

  1. Fee is only generated when CDP is closed, causing an irregular flow of MIR rewards. This causes the APR on the Governance page to change irregularly.
  2. As long as the position remains open, it will result in no MIR staker reward.

Suggestion
It seems that protocols such as MakerDAO and Kava charge a holding fee which is calculated based on the period of time which the CDP has been open for. We can use this to change the fee structure of CDPs that are open on Mirror Protocol:

  • 1.5% fee to be an APR instead of one time calculation. Maybe apply a daily compound interest of 0.00407916% to match 1.5% annual interest.
  • Fee is deducted from the collateral at every specified number of blocks (1 week is approximately 100000 blocks on Terra blockchain)

Pros
Good thing about doing this is that it will generate a more constant flow of reward for MIR stakers as long as the CDP is open.

Cons
Higher overall fee maybe charged to open CDPs as long as they are open. So it may become less likely for people to open CDPs in the first place.

What are your thoughts on this? Or is there other ways to make MIR staker rewards more stable?

This is well articulated and makes sense, but as you state at the end, this proposal would make it even less economically relevant for users to open a CDP.
This holds true especially because the assets available on Mirror are currently in a historical bull run since early 2020.

In the future , when we do have:

  • More volatile mAssets (on which a minter can net a profit by betting the asset price trends down - i.e.a mAsset indexed on gas price, etc)
  • The ability to use Mirror CDP as a deposit on Anchor, thus earning extra yield on it.

Then we can revisit extracting more rent from CDP

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This would only result in a higher fee if the minter plans to keep the CDP open for more than 1 year. For shorter time window CDPs, the fees could actually be lower. Think most minters at the moment are unlikely to keep positions open for a year or more - think we could probably raise the annualized rate (say, 4%) while keeping average CDP closure costs low for most minters

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I think that makes sense.
We could start with 1.5% (same as the closing fee right now) for positions that are open for less than a year.

And also warn the users who had a position open for almost a year, that their CDP fee is about to go up.

Furthermore, the issue with the current fee system of 1.5% for each closure of CDP is that I believe it induces further premium on the mAssets price trading compared to the oracle price since the arbitrage opportunity isn’t there due to the fee of 1.5% for each minting/closing of mAssets.

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