⚖️Protocol Fees

Protocol Fee Structure.

Here's a high-level breakdown of all the fees featured in Cluster:

Protocol Fee Structure

1. Borrow Fees

Borrow fees are charged when a loan is created, with rates varying from 0.05% to 0.15% depending on the asset class(Dimensions). More info here.

2. Spread

Spread refers to the difference between the interest rate charged to borrowers and the interest rate paid to lenders. It ranges between 20% and 50% of the interest rate charged to borrowers, depending on the risk/volatility profile of the underlying asset. This difference contributes to the protocol's revenue. For example, with a low-risk asset like USDc, if borrowers pay 10% interest with a 20% spread, lenders receive 8% interest.

3. Liquidations

Liquidation fees are charged when a user's position is liquidated due to insufficient collateral. These fees help compensate for the risk associated with undercollateralized loans and incentivize liquidators to maintain the protocol's health.

Utilization of Fees

The collected fees serve two primary purposes:

1. Propelling the protocol's growth through revenue sharing via Singularity, funding development, and marketing initiatives.

2. Securing long-term sustainability by building reserves and ensuring the protocol can weather market fluctuations.

3. Funding cross-chain liquidity rebalancing transaction fees.

These fees are subject to change depending on market sentiment or protocol needs. It's important to note that any changes will be chosen via community governance vote.