MIP 005 - Adjust Establishment Fee

[sid.maple]

Executive Summary

All Borrowers on Maple pay an Establishment Fee when they drawdown their loans. The Establishment Fee is set at the MPL Governor level at 1% of the Loan amount. It is proposed that this fee be adjusted to 0.5% by a Governance vote of registered MPL holders (Mapes).

Background Analysis

The Establishment Fee of 1% does not account for the loan’s duration and therefore punitively increases the effective all-in rate on shorter duration loans.

Example (1): 90 day loan = 365/90 * 1% = 4% annualized Fee
Example (2): 180 day loan = 365/180 * 1% = 2% annualized Fee

This renders borrowing on Maple less attractive for high-quality borrowers with the greatest market access.

Adjusting the Establishment Fee to 0.5% will drive further growth.

• Borrowers taking out second loans on Maple are taking 180 day tenors. This annualizes the Fee to 1% and attracts larger borrowers.
• This will help scale Maple’s TVL by creating a virtuous cycle in which high quality borrowers in-turn attract lenders to provide capital.

​​Basis for the conclusion

• Conversations with existing borrowers have highlighted that the Establishment Fee renders Maple’s rates less competitive.
• Adjusting the fee will not impact the Fees earned by Stakers.
• The fee is currently 1%, with 0.5% going to the Treasury and 0.5% going to the Pool Delegate. The split will remain even.
• It is expected that the adjustment will drive a meaningful increase in loan volume, more than offsetting the lower fee.

Governance Proposal

Approval is requested for the Maple Governor address to adjust the Establishment Fee from 1% to 0.5%, split evenly between the MapleDAO Treasury and the Pool Delegates.

Longer term

A solution to annualise the establishment fee within Maple’s Smart Contracts is scoped into the product roadmap and will be included in the next version release of Maple’s Smart Contracts.

Author: Sidney Powell
Date Created: 07/19/2021
Discussion: Maple Discord
Maple Improvement Proposal: MIP-005

[nelson]

I agree with lowering the establishment fee to drive adoption in these early stages, however, as you pointed out, on a 90-day loan, that is still a 2% annualized fee which makes 90-day loans less attractive and competitive.

What if we instead set the establishment fee to always equal an annualised fee of 1%. So for a 90-day loan 0.25% establishment and for a 180-day loan, 0.5% establishment fee etc. In the long run, I can see the benefits of pushing borrowers towards longer duration borrowing to reduce admin and increase retention, but in these early phases, I think we should try to encourage as much borrowing of whatever duration the borrower is comfortable with to grow the initial borrower base.

[sid.maple]

What if we instead set the establishment fee to always equal an annualised fee of 1%.

Think you’re spot on @nelson, the solution above is more of an interim while a more fleixble solution like an Annualized Establishment Fee can be implemented into the next smart contract deployment.

For the interim solution, we have to align around one maturity because the fee is set at a governance level for all loans. We’ve chosen 180 days as this is where the bulk of loan volume is converging towards. You raise good points about growth, definitely worth taking those on board.

[CharlotteDodds]

On close of voting period on July 25:
50 registered Mapes
24 in favor (48%)
1 opposed (2%)
1 abstention (2%)
24 did not vote (48%)

This fulfills the requirement of 20% Mape participation with 52% of registered Mapes voting.

The proposal passes & updates will be shared when implemented!

[sid.maple]

MIP-005 Has now been implemented with the Establishment Fee adjusted to 0.5% of the Loan Amount for new loans originated from now onwards.

Thankyou to all MPL holders who participated in governance and contributed to the discussion.