Protocol Revenue

Protocol Revenue Streams

  • Liquidation Bot Profits - Once a user’s position breaches the liquidation threshold, Tren’s liquidation bots will attempt to be the first to liquidate the position to secure profits for the protocol.

  • Liquidation Fees - Liquidators pay a small fee for the opportunity to take over the discounted collateral in positions that have passed the liquidation threshold

  • Protocol LP Fees - Fees earned from TREN and trenUSD liquidity pools created by the protocol

  • Borrowing Interest - Interest rate charged to users for borrowing trenUSD. This fee is paid directly in the form of the collateral asset. This interest rate is paid on a daily basis - if the interest rate for an isolated module is 15%, then a 15% / 365 rate is charged upon opening the position, and charged each day thereafter.

  • Borrowing Fees - A one-time fee for borrowing trenUSD. This fee is paid directly in the form of the collateral asset.

  • Performance Fees - For yield-bearing assets, Tren will use custom Hooks to provide optimal yield for users. Most yield-bearing assets will not incur borrowing interest or borrowing fees. Instead, a percentage of the yield will be charged as a performance fee. Unlike borrowing interest and borrowing fees, an exact performance fee will not be shown. This is to deter competitor protocols from deducing how and where Tren sources its yield.

  • Swap Fees - A small fee is charged for using the Swap functionality on Tren. The fee rate is similar to ones charged by mainstream DEXs.

  • Module Verification Fees - Anyone can create an isolated module by bootstrapping the pool with trenUSD, but it will not be secured by the Stability Pool. In order for an isolated module to receive verification, a fee must be paid in TREN. Once the fee is paid, the asset will be voted on by the Tren DAO, and go through a technical and market risk analysis by the Tren team. If successful, the isolated module will receive a trenUSD allocation, and will become secured by the Stability Pool.

All protocol revenue received in the form of a collateral asset will be sold and used to market buy TREN, depending on feasibility (e.g. profits from selling asset > gas costs). For example, the Tren protocol may receive a memecoin as part of Liquidation Bot Profits, Liquidation Fees, Borrowing Interest, Borrowing Fees, Performance Fees, Swap Fees, etc. A random time will be chosen on a weekly basis to sell the memecoin and other collateral assets that are part of Tren’s protocol revenue. These assets will likely first be sold into ETH or a stablecoin, depending on liquidity, market conditions, and which chain the transaction is taking place. A separate random time will be chosen to market buy TREN in one single transaction. These efforts are put in place to prevent any potential front-running, and the team will take all possible measures to prevent any other forms of MEV attacks, including using private swap functions, setting the optimal slippage percentage, and using aggressive gas settings, depending on the situation.

Revenue Flow

As an example, imagine that someone borrows $2,000 trenUSD with $5,000 USD worth of Token A in collateral, and has kept the loan open for 1 week.

And let’s say that the Token A isolated module has the following rates:

  • Max LTV: 50%

  • Liquidation Threshold: 65%

  • Current Utilization Rate: 50%

  • Borrowing Interest Rate: 15%

  • Borrowing Fee: 1%

A 1% borrowing fee ($2,000 X 1% = $20 USD), and a 15% / 365 * 7 interest rate are charged ($2,000 X (15% / 365 * 7) = ~$5.77) based on the borrowed amount, and is taken from the deposited collateral. The ~$25.77 USD worth of token A will be sold and used to market buy TREN, as outlined above.

Now let’s say that, unfortunately, the user’s position breaches the liquidation threshold of 65%. The user’s Token A collateral hits a value of $3,075, triggering Tren’s liquidation bot. The liquidation bot manages to sell Token A for $2,800 worth of TREN, and this TREN is distributed Stability Pool stakers. While the original $2,000 trenUSD borrowed by the user has been lost, the Stability Pool as a whole has made a profit of $800. Over time, Stability Providers lose a pro-rata share of their staked trenUSD, while gaining a pro-rata share of TREN.

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