- Euler DAO is voting on new fees.
- They could significantly increase the crypto collective's revenue.
Euler DAO, the crypto collective behind the popular lending protocol, is voting on a proposal to selectively increase fees on its products, potentially boosting revenue by 414%.
If passed, the proposal will add a 10% fee on Euler Prime stablecoin vaults and a 10% fee on all Euler Yield vaults.
Fees on all other products will remain the same.
“The selective strategy is smarter because the fee rate can be adjusted to suit the unique profiles of lenders and borrowers in each vault,” Anton Totomanov, founder of Objective Labs, told DL News.
Objective Labs, a risk management partner of Euler Labs, devised the proposal’s fee recommendations.
According to Objective Labs’ calculations, the new fees will increase the DAO’s annual revenue from $714,000 to over $3.6 million, giving the crypto collective a bigger pool of funds to play with.
However, the new fees will cut into the profit that Euler users can earn on their crypto. Some could look elsewhere for better places to deposit their assets.
Euler is a DeFi lending protocol similar to Aave. It is made up of dozens of vaults where users can borrow crypto against various forms of collateral, such as other crypto assets or even DeFi protocol deposits.
In 2023, the protocol was hit by a $200 million hack.
Although the attacker later returned the funds, the incident shook investor confidence in Euler, and the protocol remained dormant for over a year before relaunching in September.
Increased competition
In recent months, competition among DeFi lenders has intensified as the market reaches an all-time high of $112 billion.
Earlier this month, Aave’s DAO voted to launch a white-label lending protocol on Kraken’s Ink blockchain in a bid to tap into the centralised exchange’s customer base.
In January, Morpho did something similar when it signed a deal with Coinbase to facilitate Bitcoin-backed loans for the exchange’s customers.
Other DeFi lenders, such as Maple and Sky, are also locked in battle over institutional customers.
Euler adding more fees at such a critical time could be risky.
The protocol held off doing so initially to be as attractive and competitive as possible when it relaunched.
But now the protocol has grown to almost $2.5 billion in deposits, it could add fees without having a negative impact, Seini, the proposal’s pseudonymous author said.
Balancing act
Totomanov said that introducing fees to the Euler Yield vaults is unlikely to have a negative impact because they are already designed to offer higher yields to investors by taking on more risk.
However, for other vaults, such as those facilitating the lending and borrowing of Ethereum, adding a fee could be more detrimental.
That’s because 90% of Ethereum borrowers on Euler are engaged in looping, a strategy where lenders juice their Ethereum staking yields by repeatedly depositing and borrowing Ethereum.
These users are particularly sensitive to changes in borrowing rates.
Last week, the sudden withdrawal of $1.7 billion in Ethereum from Aave caused Ethereum borrowing rates to spike, triggering a scramble to unwind looping trades.
“Charging high fees on ETH inside Euler Prime would lead to a modest revenue increase while possibly leading to outflows,” Totomanov said, explaining why Objective Labs decided not to implement a fee on Euler Prime’s Ethereum market.
So far, 100% of voters support enabling fees in accordance with Objective Labs’ recommendations, or going further and giving the firm full control over fee management.
The vote is set to end on Wednesday.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
