Community Discussion: Exploring Future Use of Protocol Fees

General
1

The goal of this post is to seed discussion on how future protocol fees should be allocated to maximize efficiency and long-term growth for the Drift ecosystem.

As outlined in DIP-8, trading fees are currently distributed as follows:

  • 10% to the Insurance Fund

  • 10% to the Drift Liquidity Pool (DLP)

  • 80% to Protocol-owned Holdings

Protocol-owned Holdings play an important role in providing liquidity through the vAMM, generating yield from interest, and serving as a flexible reserve for new initiatives. More details on the pool’s composition can be found here: Dashboard Link

Protocol-owned holdings currently sit at ~$42mm
Annualized fees based on the last 30 days is ~$57mm

Existing protocol-owned holdings add value to the protocol, although as the pool continues to scale the marginal benefit of directing additional fees to it will decrease. This raises an important governance question: What is the most effective use of protocol fees going forward?

One proposed use is to use excess fees for the acquisition of DRIFT tokens. A draft of this approach can be found here: https://driftgov.discourse.group/t/draft-programmatic-protocol-fee-re-routing/302

For excess fees as to be defined in DIP-9 other options would be to continue directing fees to protocol-owned holdings, use fees to bootstrap a new USDC-based incentive fund or other initiatives that support ecosystem growth.

This post is intended to surface these ideas and invite broader community input. Feedback and new proposals from the community are essential to driving the DAO forward. All community feedback is highly valued.

Guiding Questions for Discussion:

  • Should protocol fees primarily be used for token alignment, is this valuable for the DAO?

  • What balance should be struck between near-term growth incentives and long-term treasury sustainability?

  • Are there alternative use cases for fees that would deliver stronger capital-efficiency or ecosystem impact?

  • If acquisition is the most capital-efficient path, should the acquired Drift be reserved for a specific use or potentially burned?

Mandate for context:
The Drift Foundation is a non-profit entity responsible for the long-term growth and sustainability of the DRIFT ecosystem. Its key responsibilities include governance support, ecosystem expansion, and maintaining the DAO’s security and stability. Part of the DAO’s mandate is to fulfil its responsibilities in a capital-efficient manner, ultimately all issuance is a cost and it is crucial that for the foundation to be net positive to the ecosystem so it is important that it acknowledges that and prioritises capital-efficiency in operations.

2 Likes
DIP-9: Support Ongoing Protocol Development & Growth
[Draft] Support Ongoing Protocol Development & Growth
2

Looking over I think everything is very reasonable.

It seems like the protocol is in a strong position, so it makes sense to do buybacks.

Would like additional clarify on what the plans are for bought back tokens? If there are no short term plans would the protocol be open to locking? Why not burn or is there any reasoning for that?

Overall strongly in favor of it and excited to see it be implemented.

3

Use excess fees to acquire DRIFT and provide liquidity onchain. Currently the token only has ~$300k liquidity on Solana, which is pretty bad for a $200M MC token. Use 50% to buy DRIFT and match with the remaining 50% in full range liquidity. This should stabilize token price and allow more traders to enter or exit their positions with smaller price impact, while collecting fees for the protocol.

4

If the fees are in USDC, take 50% to buy Drift programmatically on the open market sure, but don’t stick it in a treasury. Match with the other 50% USDC and put into pools across the ecosystem. Meteora, Tuna, etc. Drift should have deep liquidity everywhere it’s traded onchain.

1 Like
5

hmmm not sure about this

yeah only 300k on solana but the majority of volume is on Cexs

if there was more volume this would naturally increase

6

With the 80% I see useful to turn usdc into:

  • 10% for liquidity provision onchain (50% Drift, 50% SOL)
  • 20% buyback drift and stash to use in campaings, marketing or something that brings market makers and traders
  • 70% buyback and burn. Its something pretty unique when proyects post their token burn in X, big number go wow.

I think a high buyback and burn turns the token in something like JLP which I like. In this regard given the time Drift could apply to be an amplify token and stack drift for the “apy” from the burn.

7

Overall, a proposal in the right direction.

However, I dont think full-blown “buyback and burn” has yielded something drastically positive for most protocols yet.

Personally of the opinion that a portion should be locked in the reserve (eg, 50%), while the other should be burnt progressively over months, with a review scheduled every quarter to assess the impact of it.

Would also like to see how we can use bought back DRIFT to incentivize builders to build on Drift, and develop the ecosystem further

8

I like the direction of the proposal, and am glad that the protocol is in a good position to give back to the community.

Of the 80% fees, here is a breakdown that I think could be most impactful:

  1. Short Term/Immediate: 50% USDC for Daily Buyback at Market
  2. Medium Term: 20% USDC programmatically set to buyback at set prices (eg. limit buy order at 10-20% below that day’s market price)
  3. Long Term: 10% USDC stashed separate from existing Protocol-owned holdings for more flexible strategic usage (eg. increase onchain token liquidity LP pool, circuit breaker buyback during times of extreme volatility such as 10/10 liquidation).

Not a big fan of burning the tokens. In future, the re-purchased tokens can be used for other strategic initiatives such as attracting talent/ecosystem partners or turned into a DAT.

Very excited.

1 Like
9

imo main priority should be deeper liquidity, both for $DRIFT and in the protocol’s orderbooks…

I’d suggest allocating fees roughly as follows:
40% buyback and burn
20% on-chain liquidity for $DRIFT
20% deeper orderbook liquidity on Drift
20% trader and market maker incentives

The rationale is to create a positive flywheel: Drift price pumps → incentives get juicier → attracts more traders and liquidity → volume and fees go up → fuels even more buybacks and growth.

1 Like
10

Just made a thread sharing my thoughrts:

11

This may be viewed as extreme, but in the long-run every governance token would have to direct some portion of its fees (or profits) towards buybacks. Governance itself will never represent true economic value. I understand that the DAO structure had to be used in the beginning but the regulatory landscape has completely changed. My view is that Drift should use 1/3 of fees to buyback its token, reducing supply through a burn mechanism, 1/3 for ecosystem growth and 1/3 for Insurance fund/Liquidity. If you only direct towards the latter two, the value of the token will stagnate and you will actually end up with less funds to support the protocol and ecosystem growth. Investors have to be able to see the economic incentive of holding the token.

12

Everything sounds great, but I’d like the fees to be restructured like this:

  • 10% to the Insurance Fund

  • 10% to the Drift Liquidity Pool (DLP)

  • 10% to Protocol-owned Holdings

  • 10% to burn

  • 60% to buybacks for the DAO treasury.

I think this will help find the right balance. Sure, we want $DRIFT to be more valuable , but we can’t ignore the insurance holdings, which provide an important liquidity role.

13

Strongly believe full buyback and burn would prove to yield the most impact both in the short term and long term, especially given how solid the foundation of the Drift protocol already is and the potential it has going forward.

Right now as is, there isn’t a strong enough reason to hold Drift tokens. Coupled with the severe lack of flywheel effects, we mustn’t forget that this also negatively impacts the potential of the existing Community Fund war chest.

If a significant enough amount is not burned, any future redistributions of bought back tokens through incentives etc would likely lead to the tokens just being dumped back onto the market as once again, there isn’t a compelling enough reason to hold said tokens. We’d be headed back to where we started in the first place.

The current dislocation between Drift token price and the protocol cannot be any clearer.

1 Like
14

I have a slight revision - probably it makes sense to allocate a certain amount to LP Pool immediately (maybe burned)?

It seems that there is very little onchain token transaction (vs CEX) due to low liquidity - and we are all about decentralization

Also, any idea when this would be voted on?

15

Seconding this.

The PA just in the past ~24 hours is case in point that the market continues to grossly mis-price Drift’s true value.

I see a lot of mentions about liquidity but the fact of the matter is that there’s not much reason to hold or stake $DRIFT right now. Initiating buyback and burns is a very sustainable way of solving demand for $DRIFT from the base level up. Treasury funds have already been earmarked from the beginning and I think there’s also more than enough set aside for the community portion (43%!).

2 Likes
16

Fully convinced that the path to bring a real value to Drift token is:

  • Burn all the fees in a TWAP with a time window daily.
    • Accumulated fees will be used in 1 month. Then daily random buys.
  • Add a page in Drift site to see acumulated burn
    • Small and simple, also accesible from Overview tab
  • Include Drift in Amplify
    • Small social media campaing with Drift APY from Amplify
  • Post in social media weekly or monthly-acumulated burns.

In all the social media interactions focus in bringing traders exposing Drift Perp, Spot, Lend, Liquidity Management and Governance features.

The more intrincated and complex it is, the worst, we must keep it stupidly simple.

Also, OP should add a deadline for when voting will begin.

17

It’s now November and it’s been 16 days since this discussion was proposed.

Probably a good idea to start planning on voting and execution on this. Could be a good momentum for $DRIFT, as well as becoming a flywheel to attract new users.

Nov: Drift v3 release; Voting of DIP-9; Start buyback; Add Liquidity

Dec: Solana Breakpoint

18

A balanced, +EV proposal would be to re-allocate the 80% fee stream to create this flywheel while still balancing safety and growth.

Proposed New Fee Allocation (of the 80%):

50% (of the 80%): Programmatic Buyback & Reserve

Action: The protocol uses 40% of all fees (50% * 80%) to programmatically buy DRIFT on the open market.

Destination: These tokens go into the DAO Treasury, earmarked for governance-approved growth initiatives. This is high-EV, self-funding engine.

20% (of the 80%): Continue to Protocol-Owned Holdings (POH)

Action: Continue to grow the POH, but at a much slower, more reasonable rate (16% of total fees instead of 80%). This maintains the “safety” aspect.

10% (of the 80%): Direct Growth & Incentive Fund

Action: Allocate 8% of total fees to a new USDC-based fund.

Use: This fund can be used for near-term growth, like trading competitions, LP incentives, or ecosystem grants, providing a direct boost but in a controlled, sustainable way.

This hybrid model strikes the perfect balance since it creates direct value accrual (Buybacks), builds long-term strategic flexibility (DAO Treasury), funds near-term growth (Incentive Fund), maintains long-term safety (POH).

Imo this is the most capital-efficient path to maximizing the long-term value of the entire ecosystem.

1 Like
19

Can we start voting on this now?

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I only wanted to tell my ideas about future but if they are not good enough then promise me.

ı am a user of drift app and drift token holder for more than 2 years and ı only wanted to tell my ideas you.Thanks for your understanding and tolerence….

PROJECT DRIFT: COMMUNITY POWER, FAIR REWARDS & LIQUIDITY BOOST

This proposal delivers 5 key benefits for DRIFT holders and liquidity providers:

  1. :rocket: veDRIFT System: Lock & Amplify

· Lock your DRIFT tokens and receive veDRIFT in return.
· The longer you lock, the more power you gain:
· 0-3 months: 1x Power
· 3-6 months: 1.5x Power
· 6-12 months: 2x Power
· 1+ year: 3x Power

  1. :droplet: Liquidity Power: Provide LP, Boost Your Rewards

· DRIFT/ETH LP token holders can lock them for veDRIFT points.
· Dual Rewards for LPs:
· Earn standard trading fees from the DEX pool
· Receive extra DRIFT emissions based on your locked LP amount
· Get bonus veDRIFT power (e.g., 1.2x multiplier) for providing liquidity
· This creates constant buy-side pressure and stabilizes the DRIFT/ETH pair.

  1. :money_bag: Real Yield: Earn Stablecoins

· As the protocol earns, you earn!
· A significant portion of the protocol’s revenue will be distributed to veDRIFT holders as regular USDC/USDT payments.

  1. :bullseye: Fair Weekly Draw: A Chance for Everyone

· Anyone with minimum 500 DRIFT or equivalent LP tokens can participate.
· The weekly prize pool will be funded by 3% of the protocol’s weekly stablecoin revenue.
· Small-investor friendly chance system

  1. :trophy: The DRIFT Arena: Engage, Earn Points, Make an Impact

· Brand New Mobile & Web Design
· 3-in-1 Reward System
· Real-Time Tracking

Key Liquidity Features:

âś“ Protocol-Owned Liquidity: A portion of protocol revenue will automatically market-buy DRIFT/USDC LP tokens to create permanent protocol-owned liquidity
âś“ Liquidity Mining 2.0: LP providers earn not just emissions, but also governance power and eligibility for all DRIFT ecosystem rewards
âś“ Multi-chain Liquidity: Future expansion to Arbitrum, Base, and other L2s with cross-chain incentives

Let’s build deeper liquidity and a more valuable DRIFT, together!