Protocol System Fees

The jAssets generate revenue from various operations within its protocol. Jelly Token (JLY) holders can stake their tokens to earn a share of these fees proportionate to their stake in the total JLY staked.

Revenue Generation

1. Redemption Fee

   The redemption fee is deducted from the total collateral withdrawn during a redemption, based on the current redemption rate. When a redemption occurs through RedemptionManager.redeemCollateral, the fee is transferred to the staking contract in all used collateral tokens.

2. Issuance Fee

   The issuance fee, charged in jUSD, is based on the amount of debt drawn by the user and added to their Vault's jUSD debt. For jUSD, the fee varies with the current borrowing rate, which is dynamic. Other jAssets have a static borrowing rate of 0.5%.

   When new jAssets are drawn via functions like BorrowerOperations.openTrove, SwapOperations.addLiquidity, SwapOperations.openLongPosition, or SwapOperations.openShortPosition, extra jUSD is minted, and an equivalent amount of debt is added to the user’s Vault. The fee is transferred to the Reserve Pool. Once the Reserve Pool reaches its maximum capacity, subsequent fees are directed to the staking contract.

3. Balance Fee

   The balance fee is paid in the incoming token of a pool swap. It consists of a static portion of 0.3% (swap fee) and a dynamic portion that can reach up to 5.0%. The dynamic component is calculated based on the deviation of the pool price from the Oracle price. A higher deviation results in a higher fee. 50% of this fee is allocated to the swap pool as a reward for liquidity providers, while the remaining 50% goes to the staking contract.

Fee Schedule

• Redemption Fee: Calculated based on baseRate in TroveManager. The baseRate adjusts with each redemption, and decays over time since the last fee event.

• Issuance Fee: Also based on baseRate, adjusting with each jUSD issuance and decaying over time.

• Fee Limits: REDEMPTION_FEE_FLOOR and BORROWING_FEE_FLOOR are set at 0.5%. The maximum borrowing fee (MAX_BORROWING_FEE) is capped at 5%, ensuring fees do not drop below this threshold during redemptions to prevent front-running.

Fee Decay Implementation

Time is measured in minutes (block.timestamp). The baseRate decay rate ensures fees reduce gradually over time. The decay parameter is set to reduce the fee by approximately 1% per hour, ensuring that after one week, the baseRate decays significantly from its initial value. This decay mechanism prevents the baseRate from being artificially maintained at high levels through frequent small transactions, safeguarding against manipulation.