Protocol and settlement fees
DIVA Protocol applies the following fees when users redeem position tokens or remove liquidity (% fee applies to the claimable collateral amount):
- Protocol fee: 0.25%
- Settlement fee: 0.05%
Example 1: Bob owns 100 long position tokens. Based on the final value reported by the oracle, Bob is eligible to claim DAI 70. At redemption, Bob is returned DAI 69.79 and the remaining DAI 0.21 (0.3%) go to the corresponding fee recipients.
Example 2: Bob owns 100 long and 100 short position tokens which represent a claim on DAI 100 in the contingent pool. When Bob removes liquidity, he is returned DAI 99.7 and the remaining DAI 0.3 (0.3%) go to the corresponding fee recipients.
The protocol fee is allocated to the DIVA treasury and DIVA token holders can vote on how to spend those funds. The settlement fee is typically paid to the data provider. If the data provider fails to submit a value and the fallback data provider has to step in, the fallback data provider will receive the settlement fee. If both don't report, then the fee goes to the DIVA treasury.
Fees are paid in collateral token and retained within the DIVA Protocol until they are claimed by the respective fee recipients. Fee parameters are updateable by DIVA governance up to a maximum of 2.5%.
Fees were baked into the DIVA Protocol to achieve the following:
- Ensure long-term viability and sustainability of the DIVA Protocol project
- Incentivize users to create position tokens that they can realistically sell
- Incentivize data providers to remain honest
Apps that build on top of DIVA Protocol may introduce their own fees on top. DIVA App, for instance, will implement a small trading fee that will be directed to the DIVA treasury.