Refraction Fees
Introduction
We've introduced an innovative mechanism known as the Refraction Fee, which serves as a vital component in incentivizing bond depositors. PRM tokens, the protocol's yield tokens, derive their value from the yield generated by bond deposits. The Refraction Fee ensures that bond depositors are rewarded for their contribution of yield liquidity to the protocol, fostering a sustainable and mutually beneficial ecosystem.
This mechanism provides adequate compensation to depositors for offering their yield to the protocol, encouraging ongoing participation and support. The Refraction Fee acts as a direct incentive, enhancing the value and utility of depositing yield within the protocol, ensuring that both the protocol and the depositors benefit from this arrangement.
Trading Fees
The trading of PRM tokens incorporates a transfer fee mechanism designed to benefit bondholders directly. Whenever PRM tokens are traded, a portion of the transaction is allocated as a fee and distributed to bondholders. This setup rewards bondholders for supplying the yield that underpins the value of PRM tokens, creating a marketplace for trading their yield.
This mechanism ensures that bondholders receive compensation through trading fees collected from all token transfers. It's a strategic approach to provide them with potentially higher yields on their liquidity in LST. By facilitating this exchange, the protocol not only incentivizes the provision of yield liquidity but also enhances the attractiveness of holding and trading PRM tokens, fostering a symbiotic relationship between traders and bondholders within the ecosystem.
Rebasing Fees
In addition to trading fees, bondholders benefit from an additional income source derived directly from rebasing rewards. These rewards represent the compounded yield generated from LST deposits within the bonds over time, accumulating within the treasury.
This structure ensures that new bond depositors receive a portion of the fees generated from the yields of previous bond deposits, which have been integrated into the treasury assets and underpin the value of PRM tokens. Essentially, this creates a cycle where the continuous flow of bond deposits contributes to the treasury's growth and enhances returns for future depositors. This innovative mechanism enriches the ecosystem by making the act of depositing into bonds more attractive, ensuring that the collective contributions of bondholders reinforce the protocol's financial health and, by extension, the value of the PRM tokens they hold.
Refraction Index
The Refraction Index is a unique feature tied to each bond NFT, influenced by the refraction fees. This index plays a crucial role in determining how refraction fees are allocated across bonds, with a preference for bonds of longer maturity. Essentially, the longer the bond's maturity period, the greater the share of fees it receives from both the trading and rebasing of PRM tokens.
This mechanism strategically incentivizes bondholders to opt for longer maturity periods by directly linking the duration of a bond to its yield potential. Through this, the protocol promotes long-term investment within its ecosystem and aligns the interests of bondholders with the overall health and growth of the treasury. The Refraction Index serves as a powerful tool to encourage sustained participation, ensuring that those who commit their capital for longer durations are rewarded with proportionately higher returns, thereby enhancing the appeal of long-term investments within the protocol.
The following table shows the increasing index by .01 over the period of the bond for each bond:
| Bond Length, Days | Refraction Index |
|---|---|
0 | 1 |
5 | 1.05 |
10 | 1.10 |
15 | 1.15 |
20 | 1.2 |
30 | 1.3 |
60 | 1.6 |
90 | 1.9 |
180 | 2.8 |
360 | 4.6 |
In an example, if we have a refraction fee of $1,000, depending on the bond value, and it’s refraction index, the distribution would be like this:
| Bond Value | Refraction Index | % of Total Value | Fee Distribution |
|---|---|---|---|
$10,000 | 1.5 | 0.63% | $6.32 |
$50,000 | 2.3 | 4.85% | $48.52 |
$100,000 | 1 | 4.22% | $42.19 |
$200,000 | 1.2 | 10.13% | $101.26 |
$500,000 | 1.6 | 33.76% | $337.55 |
$1,000,000 | 1.1 | 46.41% | $464.13 |
The fee distribution within the protocol is designed to be proportional to the value of each bond, ensuring a fair allocation of rewards based on the bond's worth. However, the introduction of the Refraction Index introduces a nuanced adjustment to this principle. Bonds with a higher Refraction Index receive a larger share of the fees, thereby offsetting the straightforward proportionality based on bond value alone. This design allows bonds of lower monetary value but with longer maturities and higher Refraction Indices to accrue more fees than might be expected from their value alone, incentivizing the holding of bonds for longer terms.
By rewarding longer-term commitments with a higher fee share, the protocol encourages investors to consider not just the immediate value of their bonds but also the potential long-term gains from increased fee distributions. This approach not only enhances the attractiveness of long-term bonds but also supports the stability and growth of the protocol's financial ecosystem.
The formula for the refraction fee distribution is as follows:
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