Proposal: Should the DAO introduce a 0.1% fee on peg-in operations?

Summary: This proposal would update the current fee model for cross-chain operations on asset transfers to create an additional incentive for pNetwork nodes. The current fee structure is formed of a 0% peg-in fee and a 0.25% peg-out fee. This proposal brings forward an increase of the peg-in fee to 0.1%. All fees would be distributed across pNetwork nodes and serve as an incentive for their operations.

Motivation: pNetwork nodes are a crucial component of the pNetwork - they are responsible for securing cross-chain operations and increasing the overall security of the protocol (check out the state of the network at pnetwork.watch).

This is a proposal to introduce an additional incentive for node operators to reflect their key role within the ecosystem. Such an incentive is translated into an update of the current fee model that applies to cross-chain operations so that a 0.1% fee is applied to peg-in transactions. Introducing a fee on peg-in operations processed via pNetwork creates an incentive for entities to spin up a pNetwork node and support the network. From the opposite point of view, a network of nodes contributes to a more stable and higher quality service, making pNetwork more attractive for new users.

Since the pNetwork DAO voted on introducing the current fee model, pNetwork has both reached important milestones in terms of adoption and come to the planned halving of DAO rewards for PNT stakers (that was established as an incentives’ boost during the initial phases of the project). The initial 0% fee campaign on peg-in operations has therefore proven itself successful in attracting liquidity and boost pNetwork’s TVL. The proposal to introduce a fee on peg-in operations is aimed to better reflect the current status of the project, align with its future development and growth plans as well as position in line with competitors’ fee structures.

Specification: For the ecosystem to experience healthy growth, it is essential to align incentives for all participants. This proposal aims to create a benefit for existing pNetwork nodes as well as to welcome new node operators within the network, the upside for them being a redistribution of fees collected by the network.

Prospective node operators need to stake a minimum amount of PNT tokens (currently set at 200,000 PNT), which is then used to show their commitment and serves as a bond. When operating a pNetwork node, node operators are eligible for both DAO voting rewards and rewards coming from the redistribution of the fees collected on cross-chain operations. As DAO voting rewards have recently been halved from a previous 42% APY to a current 21% APY (as planned by the incentives distribution plan for early pNetwork supporters), introducing an additional long-term incentive contributes for the node operation to be sustainable.

Since the pNetwork DAO voted on introducing the current fee model, pNetwork’s growth is steadily increasing in terms of Total Value Locked safeguarded by pNetwork nodes as well as cross-chain transactions volume. The initial 0% fee campaign on peg-in operations has proven itself successful in attracting liquidity and has contributed in pNetwork surpassing the $ 100 Million in TVL milestone, with the funds safeguarded by the system currently at $ 180+ Million. The top asset bridged by the network (pBTC on Ethereum) has processed alone $ 250 Million in cross-chain transaction volumes, with the total volume reaching $ 620+ Million when considering all pTokens.

While creating an incentive for pNetwork nodes, it is essential for the fee model to be competitive in order for the system to continue being adopted and expand its users base. This proposal suggests the project has reached its sweet spot for introducing a 0.1% pegin fee, granting additional incentives for node operators without impacting the attractiveness for users by aligning with competitors’ fee structures.

In summary, the proposed update on the fee model on cross-chain transactions on assets would follow the structure below:

The asymmetric fee structure initially introduced to consider the overall benefit each operation brings to the pNetwork ecosystem is maintained. Such a model is aimed at fostering an increase in Total Value Locked and facilitating the onboarding of new users.

The payment for the fees happens in terms of the asset users transfer cross-chain. As an example, while processing the tokenisation of Bitcoin on Ethereum, a peg-in fee would be collected by the system in BTC and distributed to pNetwork nodes.

Below, a chart showcasing the US Dollar counter value of peg-in fees distributed to pNetwork nodes based on the cross-chain transaction volumes processed:

Note: future changes to the fee model may be applied should there be a need for it to ensure pNetwork both stay competitive and rewards its stakeholders.

Join the discussion of this proposal on the pNetwork community channels.