[RFC] Protocol Fees and a Commitment to Public Goods Funding

[cwhinfrey]

There have been several conversations among community members regarding introducing protocol fees for Hop. Currently, fees go solely toward paying supply-side participants such as AMM LPs and Bonders. There have been $7m total fees collected to date!

Even a small protocol fee would provide significant funding to help cover general DAO expenses such as development costs, grant programs, foundation costs, and more. With the development of Hop v2, we have the opportunity to introduce a Protocol Fee Switch to each module (messaging, token bridge, nft bridge, etc.) to help cover general costs in the DAO.

The introduction of a Protocol Fee Switch also gives us the opportunity to enshrine a commitment to public goods funding directly into the protocol. It’s important to remember that Hop is built on the shoulders of giants. We wouldn’t be here today if it weren’t for Ethereum and the many other public goods that exist because of the Ethereum community. Diverting a portion of fees would allow Hop to give back to the Ethereum community and the broader world perpetually through public goods funding.

Proposal

A protocol fee switch should be added to each Hop module produced by Hop DAO. In addition, a minimum of 10% of fees collected by the DAO from each module should be diverted to public goods funding outside of the immediate Hop ecosystem.

Execution

All protocol fees will be initialized in an off position. The protocol fee can only be set by a direct on-chain vote after the full governance process.

The minimum public goods funding percentage can be enshrined directly into each fee collection mechanism. Once enshrined, Hop DAO will be able to control which address receives the funding (e.g. a Public Goods Grants Committee) but will not be able to lower the public goods funding percentage below the minimum. When the DAO sweeps fees from the module, the public goods portion will be automatically diverted.

These funds are intended for public goods that benefit the broader Ethereum community or world and not for public goods directly within the Hop ecosystem. Grants within the Hop ecosystem are better served by the currently proposed grant program or something similar.

Acceptance

Because this proposal has no immediate on-chain action, it will be considered accepted after a passing Snapshot vote.

[dybsy]

The DAO should authorize and fund engagement of a law firm to provide a legal opinion about the implications of instituting a fee switch before making any such proposal. If Hop Labs has already obtained one with their own counsel, they should share it with the DAO. This is the sort of the decision that requires nuanced and involved consideration given the regulatory and enforcement environment.

[Kene_StableLab]

This proposal makes perfect sense from a business development and social responsibility perspective. Generating revenue while being able to give back a significant portion of fees to Public Goods is a great idea.

As a follow-up, will Public Goods Funding be undertaken under a new committee? If the answer is yes, should we expect a follow-up proposal if this proposal passes?

[cwhinfrey]

@Kene_StableLab

As a follow-up, will Public Goods Funding be undertaken under a new committee? If the answer is yes, should we expect a follow-up proposal if this proposal passes?

The DAO will need to determine how to handle public goods funding. This could be as simple as setting an external address (e.g. the gitcoin grants matching fund address) or setting up Hop’s own grant committee.

Given v2 will need to be deployed, and then a proposal to collect fees would need to pass, there’s plenty of time. We don’t plan to post the follow up but would encourage anyone who’s interested to do so.

[fourpoops]

I think the fee switches should be added to each Hop module and only before a separate governance vote takes place to turn on the fee switch should we need definitive opinion about implications of turning on a fee switch based on where/how it gets directed. There seems to be precedent here with Uniswap.

[dybsy]

yeah, that makes sense.

[Sisyhpos]

This proposal makes perfect sense to me. Ensuring we have the tools to turn on and off revenue streams, and fine-tuning the amount looks the way to go.
Committing to public goods is a great way to contribute to the whole ecosystem. Looks great!

[fredcoen]

Definitely a good idea to implement such a switch from the start to have the option later on

[anguschiu.eth]

Glad to hear we have a proposal to provide long term support to public goods in protocol level. The value of the giveaway cannot be underestimated.

I think we should also mention thison the Hop exchange UI, so that Hop users can know that certain percentage of fees s/he is paying for, will indeed be used on public goods.

[francom]

conceptually i support this proposal but agree with dybsy and fourpoops on the importance of having some understanding of the fee switch implications for the dao and its participants before moving forward

[lefterisjp]

So let me see if I understand correctly. The TL;DR is to enable protocol fees and have those fees accrue to the DAO itself, right?

And keep a % of those fees, with a 10% minimum as suggestion to devote to public goods funding?

[cwhinfrey]

That’s more or less it but let me try to clarify.

If a module collects fees for the protocol, 10% will be siphoned off to a public goods address and 90% would go to the DAO (or whatever percentage the DAO lands on). The minimum public goods % and fee collection mechanism get enshrined in the protocol itself so the DAO can’t collect fees to cover general expenses without also giving back a portion to public goods at the same time.

Here’s how it looks in the Core Messenger FeeDistributor: contracts-v2/FeeDistributor.sol at master · hop-protocol/contracts-v2 · GitHub

[GFXlabs]

@cwhinfrey

10% will be siphoned off to a public goods address

Given that this will be in the actual smart contract, what is an example of a public goods address? Would this be something similar to the new grants program? Or perhaps an address directly under the control of governance?

A bit in the weeds, but since it looks built in, just curious what some examples (existing or hypothetical) might look like.

[fourpoops]

I think something along the lines of Gitcoin Grants Matching Pool Fund or Optimism’s Retro Public Goods Funding (retropgf.eth) would be good examples of public goods addresses. I also think the Hop Grants Program would fit under this category. Although the “minimum public goods % and fee collection mechanism get enshrined in the protocol itself,” there’s definitely a softer social layer that will have to decide on what address is a public good at the end of the day.

[cwhinfrey]

@fourpoops

Although the “minimum public goods % and fee collection mechanism get enshrined in the protocol itself,” there’s definitely a softer social layer that will have to decide on what address is a public good at the end of the day.

This is a great observation and I’m glad you brought it up. The social layer also comes into play when these mechanisms are introduced to future versions and modules too. So in that light, it very much is a social contract between Hop DAO and broader Ethereum community but enshrining it in the protocol creates a strong signal and hopefully strengthens this social contract.

[fourpoops]

Vote just posted: Snapshot

Voting yes ofc

[lefterisjp]

Given that this will be in the actual smart contract, what is an example of a public goods address? Would this be something similar to the new grants program? Or perhaps an address directly under the control of governance?

I would say just put it into a different multisig specifically devoted to public goods via hop, so protocol is not too attached to one system over the other. God knows gitcoin has its flaws, so does optimism’s retropgf (both suffer from the QF problem of popularity contest and gaming the system). You would want a way to keep agency over which system to use.

If a module collects fees for the protocol, 10% will be siphoned off to a public goods address and 90% would go to the DAO (or whatever percentage the DAO lands on). The minimum public goods % and fee collection mechanism get enshrined in the protocol itself so the DAO can’t collect fees to cover general expenses without also giving back a portion to public goods at the same time.

Understood. Appreciate it and am definitely voting yes for this one.

[max-andrew]

Voted yes. Continuing with our reasoning from HIP-15, we support increased investment by Hop. Public goods funding is not only important for helping support protocols and services Hop and individuals rely on, but it also helps grow and improve this infrastructure, improving Hop by extension. This move brings Hop in line with projects like Optimism and captures the ethos of the type of decentralized, pro-community project that we would like see Hop to continue growing into.

[olimpio]

Votes yes. Eventually turning ON a fee switch will help towards bringing Hop to a self-sustained status, using these fees to help cover DAO expenses. I also believe that 10% PGF used to incentivize direct Hop ecosystem is a good idea not only for business development but also for the ecosystem development.