Fees & Protocol Income

The Kopi protocol uses XKP as its utility token and is required to pay gas fees. Users can stake their XKP to participate in Governance, it is yield bearing and the protocol’s supply-managed tokens such as kUSD are backed by it. To give XKP its value and to incentivize staking, the protocol has several sources of income which all contribute to the value of XKP:

• The Money Market includes a fee for redeeming cAssets. When users create a redemption request, they must set a fee to pay. The higher the fee, the higher the priority will be for that request. Since all cAssets might be redeemed at one point, the protocol takes a small percentage of the value of all cAssets.

• Similar as for cAssets, users who are redeeming aAssets have to pay a redemption fee which is handled the same way as the fee coming from cAsset redemptions: Part of it is sent to the protocol while the rest stays in the vault, to the benifit of other aAsset holders.

• In order to have automations executed, users must first top-up their automation fee balance. Then, whenever one of their automations is executed, kUSD is deducted from that balance and burned. The fact that users have to deposit kUSD requires users to buy kUSD.

• The DEX requires users to pay a trade fee. The fee is taken when a trade-step (all trades on the Kopi DEX are two-step trades; please refer to the Trade execution section for more details) is executed. Since all trades are routed via XKP, some trades might require two-step trades. In these cases, the fee is taken twice, but only half the amount at each step. The fee is divided between liquidity providers to incentivize providing liquidity and the protocol. Two-step trades do not apply only for trades where a user buys or sells XKP.

Every few minutes, the protocol checks its reserve holdings. All assets that are not kCoins are added as liquidity to the DEX. The reason for this is that as more liquidity is added to the DEX, the more attractive trading on it becomes and the more fee income the protocol will receive. On the other hand, kCoins like kUSD are burned. For these tokens, there are two possible scenarios. Firstly, when their supply is high in relation to their demand, excess demand must be burned, therefore burning the reserve fee income contributes to this. Secondly, when the supply is low in relation to the demand, the module responsible for managing the supply will re-mint them, sell them for XKP and thereby increase the price of XKP. The bought XKP is then partially burned and partially sent to stakers.