Protocol Fees

Bit Protocol implements a strategic fee structure and interest rate system, designed to balance the protocol's sustainability with user incentives. This section explores how fees and interest rates function within Bit Protocol, guiding users in navigating these financial aspects.

Overview of Fee Structure

• Minting Fees: Upon minting bitUSD, users incur a one-time minting fee. This fee is added to their debt in the vault and is crucial for maintaining the protocol’s economic balance. The initial fee is set to 0.5%, but can be adjusted via governance depending on market conditions, going to a maximum of 5 % in the case of ROSE and wstROSE.

$$Minting Fee=bitUSD Amount Minted×Minting Fee Rate$$

• Borrow Interest Rate: The borrow interest rate is applied to the debt incurred when minting bitUSD. This interest accrues over time. The rate is dynamic, responsive to market conditions and protocol needs, ensuring a balance between attractiveness to borrowers and protocol sustainability. The interest rate ranges from 0,5 % APR to 10 % APR in the cases of ROSE and wstROSE,

$$Accrued Interest=Outstanding Debt×Interest Rate×Time Period$$

• Redemption Fees: When users redeem bitUSD for collateral, they pay a redemption fee. This fee is vital for regulating the flow of redemptions under volatile conditions. The calculation for the redemption fee is as follows:

$$Redemption Fee=bitUSD Redeemed×(Base Redemption Fee Rate+0.5$$

Calculating the Base Redemption Fee Rate

• A Dynamically Adjusted Variable: The Base Redemption Fee Rate within the Bit Protocol architecture is dynamically adjusted, increasing with each redemption and gradually decaying over time, following a 12-hour half-life.

• Base Redemption Fee Rate Calculation: After each redemption, the rate undergoes recalculation. It first decays according to the time elapsed since the last fee event and then increases in proportion to the fraction of the total bitUSD supply that has been redeemed.

$$New Base Rate=Old Base Rate+ 2×Redeemed bitUSD/Total bitUSD Supply ​$$

Balancing Fees and Interest Rates

• Dynamic Adjustments: The protocol dynamically adjusts fees and interest rates based on market conditions and protocol health. This flexibility is key for responding to economic changes and ensuring protocol stability.

• Transparency and Predictability: The fees and interest rates are clearly communicated to users, providing transparency and predictability in their financial planning within the Bit Protocol ecosystem, and will ultimately be controlled via governance. (Details in Q1 2025).

Purpose and Impact of Fees and Interest Rates

• Protocol Sustainability: Fees and interest rates are essential for maintaining the economic viability of the Bit Protocol, supporting operational costs and incentivizing key stakeholders.

• User Incentives: By carefully balancing these charges, Bit Protocol ensures that users are incentivized to participate actively and responsibly in the ecosystem, and helps to mitigate risks.