A guide on Protocol Fees

A guide on fee sharing and fee reduction on the Premia platform.

Understanding Protocol Fees

Every time a user Writes/Exercises/Buys/Sells an option, protocol fees are paid. The amount of protocol fees charged is dependent on if the user is using a referral, as well as the amount of xPremia that user has locked up at that time.

Protocol Fee Sharing and Fee Reduction

Users can choose to stake their Premia to receive xPremia, which represents their proportional share of Premia Protocol Fees returned in Premia (since voted in by the DAO). This mechanism is similar to xSushi, whereas fees earned by the protocol are sold via DEX into ETH, and that ETH is then used to buy back Premia from the Bonding Curve and send to the pool of staking users (the xPremia pool).

xPremia (now a payment in kind yield bearing asset) can then be staked for different time periods to reduce that wallets protocol fees paid. Fee reduction is dependent on the amount of xPremia locked up by a user at the time. This incentivizes heavy protocol users to lockup their Premia to take advantage of this benefit while still receiving rewards from staking their Premia.

By locking larger amounts of xPremia, users can unlock multiple “tiers”, which coincide with different levels of fee reduction. The below table is the breakdown of the fee reduction for each tier. Quantity on this table represents the amount of xPremia that has been locked up. The longer the user locks their xPremia the larger the bonus to their locked amount they will receive.

Lock up Bonus Multipliers are as follows:
1 Month = 1x, 3 Months = 1.25x, 6 Months = 1.5x, 1 Year = 2x

Example: User has Staked their 250,000 Premia (current Premia:xPremia rate = 1:0.75) and received 187,500 xPremia. That user then locks up their xPremia for 1 Year receiving a 2x Bonus. Their effective amount is thus 500,000 Premia (or 375,000 xPremia) and they are entitled to the max fee reduction defined on the bottom row of the table.

At any point during the lockup period if the user wants to add additional xPremia to their lockup, this is allowed and the calculation will take into account the new bonus and effective amount, however they will reset their lockup period based on their new time selection. Time can only be added to a lockup period, never subtracted.

The Premian Republic believes this solution is effective to both allow Premia to be a yield bearing asset by dispersion of fees, as well as allow certain heavy users to be able to reduce the fees they pay to the Protocol, creating a healthy synergy. Please feel free to ask any questions you may have in the Discord.

Discord: https://discord.gg/6MhRmzmdHN
Website: https://premia.finance/
Twitter: https://twitter.com/PremiaFinance