How Clip Captures Fees
The ability to capture fees is necessary for any protocol to be sustainable. Tech startups have long been glorified even if they don’t turn in a profit. But times have changed. And it’s risky to exist only out of investors’ mercy. We’re very much revenue-driven at Clip. Sometimes it collides with the idealistic worldviews that we hold about crypto, but idealistic thinking rarely aligns with how the real world works.
To explain how Clip generates fees, I will first take a moment to explain what we do.
We are building an infrastructure layer for cross-chain yield-generating products. User experience-focused diversified yield optimization protocol is the first product built on top of our infrastructure. With features like upfront fixed-rate yield, real-time rebalancing, and yield delegation coming soon after the launch.
Performance fee
For a yield optimization product achieving scale is the most important goal in terms of capturing fees. We charge a performance fee from the earned yield. The bigger the TVL, the more yield we earn for our users and for the protocol. The fee model is similar to the traditional fund business, the difference being that with Clip funds are deposited into smart contracts and Clip doesn’t charge management fees and makes money when the users make money.
The business model described above means that you need to scale in order to generate meaningful fees. This usually doesn’t happen overnight, at least not in the bear market! But it’s crypto and anything is possible, especially as we’ve built strong incentives for TVL providers and the community to spread the word about Clip. It’s very possible for Clip to become an important player in the market in a short period of time.
However, as serial builders and experienced entrepreneurs, we design our plans taking into account scenarios where everything does not go as desired. As a result, to make sure we have funds to keep investing in growth, we’re implementing the limited-time token tax.
Limited-time token tax
The second source of fees for us is a 3% token tax on swaps. This tax will be in effect only for the first year. All proceeds from this tax will go into our marketing budget and will be used to fuel the growth of the protocol. This in turn will help us to increase our performance fees, as well as unlock CLIP governance token rewards for hitting TVL milestones (read the previous blog post on how the tokenomics work here).
Unlocking milestones is beneficial for the users who deposit funds on Clip’s protocol as they then earn more CLIP rewards.
Fiat on-ramp/off-ramp
As a future development, we’re integrating fiat on-ramp and off-ramp. You will be surprised but majority of people who want to take part of decentralized finance don’t have enough knowledge how to use web3 wallets, how to buy stablecoins on exchanges. Therefore an easy on-ramp and off-ramp will majorly increase Clip’s userbase. While we don’t expect the fiat exchange fees to be significant at the beginning, we do believe that having an on-ramp integrated with us will be an important feature in creating a one-stop yield-earning experience for our users. We’re working on legal solutions to have that capability in the not-too-distant future.
Upfront fixed-rate yield
Upfront fixed-rate yield is something we’re very excited to bring to the market because our architecture enables us to do upfront yield without locking the user funds. Users will be able to get their yield upfront, and upon necessity to claim their principal early (by paying a penalty). It’s a really cool feature we’ve gotten a lot of positive feedback on. Fixed-rate yield provides several options for capturing fees — one is to charge a fixed fee, and the other is to capture any premium we can deliver on top of the fixed yield promised to the user. Read in our docs more detailed information about this product.
Stablecoin swap fees
We’ve already integrated stablecoin swaps into the Strategy Router, which is the core piece of our protocol. We also plan to introduce a stablecoin swap as a standalone feature in the future once we have a considerable number of users. The DEX market is incredibly competitive, but with an existing user base and great user experience, we expect to find our place in the market and even add non-stablecoin tokens as well. These decisions will be done based on the market feedback and the DAOs governance vote.
NFT Collection
Clip is launching its presale NFT collection in early May 2023. The proceeds from minting will be mainly used to seed liquidity for CLIP governance token trading pair and funds to further expand team and develop protocol. The creator fees earned on secondary markets go to the protocol as well as to the NFT holders (we are aware that creator fees are optional). The NFT collection has many utilities you don’t want to miss, including getting an airdrop of a CLIP governance token. Pay attention to our Discord and Twitter to be in the loop.
ETH staking and other non-stablecoin offerings
ETH LSDs (liquid staking derivative) was a hot narrative in Q1 2023. Releasing an ETH LSD aggregator is something we’ve had discussions about with the Clip’s leadership team. The market is big, and it’s easy to use the Strategy Router for this purpose. There will be other exciting LSD optimization opportunities in the future besides ETH.
What will happen with the captured fees?
The beautiful thing about crypto is that it’s inclusive. The introduction of tokens gives the opportunity for protocols to share fees with the token holders. At Clip, the DAO can vote to share protocol fees with the token holders. This creates a situation where all users are interested in increasing the protocol TVL and the user base. More users and bigger TVL → more fees. More fees → bigger rewards. And it’s up to the community and DAO governance to decide how the fees will be distributed.
