As we announced some weeks ago, and in our Discord, we’ve been working on implementing fees. Fees are a crucial part of the puzzle. They ensure Toucan Protocol can sustain itself and continue to grow. Properly designed, they also allow for pools to hold a depth of liquidity across different methodologies and vintages. And fees are also a mechanism to ensure pool hygiene and guarantee long-term success of BCT.
This post is an update to the community with more details on fees we’ve implemented, and what to expect in the coming weeks and months.
We’ve implemented selective redemption fees on our BCT and NCT pools. This means that if a user wants to choose which TCO2 they receive on redemption, a fee is diverted. This fee is used to retire carbon held in the pool and to provide revenue to Toucan. To receive the default TCO2 tokens — which are the oldest vintages — redemption is still free. This creates an incentive to redeem/burn oldest vintages and constantly improve the health and long-term success of both the NCT and BCT pools.
We have instituted a temporary fee model in order to protect BCT holders from rebalancing activities, as announced here. A 25% fee is levied on selective redemptions from the Base Carbon Pool, so if you redeem 100 BCT you’d receive 75 TCO2 tokens of your choice.
5% of the redeemed amount is sent to Toucan to sustain protocol growth, and 20% is used to burn older carbon tokens held in the pool. This embedded burn is designed to constantly improve the quality of carbon tokens held in the pool, to benefit all BCT holders.
This is the first step in our process of developing a dynamic fee model, partly put in place in order to protect BCT holders from rebalancing activities.
The NCT pool launched with a 10% selective redemption fee — 5% goes to the Earth in the form of retired carbon tokens, and 5% goes to Toucan to sustain protocol growth. We announced both the NCT and BCT selective redemption fees on our blog prior to NCT launch, here.
We’ve gotten great feedback and ideas from the community on how we could implement a fairer fee system that reflects the spectrum of carbon tokens of different values held in carbon pools. Specifically Rez has had some stellar ideas about a dynamic fee system, which we asked him to share to help catalyze a conversation.
We are working on designing a dynamic reflexive fee model that takes these factors into consideration to replace the current flat fee rate. We will present it to the community for feedback as soon as we have a stable proposal. In the meantime, we’d love to hear any ideas you might have about how to build a fee system that ensures the long term health of Toucan Protocol and on-chain carbon markets.