AIP 3: Fee Rebates

[Smets]

We propose channelling a portion of protocol fee revenue to increase stAAA utility. This will act as a catalyst to align long-term AAA holders with Arcadia’s accelerating momentum and TVL growth. Three options below:

Option 1: Fee Rebates

Users receive fee rebates based on their stAAA (staked AAA) holdings, paid in stAAA tokens.

This aligns all participants of the ecosystem:

• Direct user incentivisation to join the AAA ecosystem by holding stAAA
• A percentage of fees earned will be used to buy back AAA on a daily/weekly basis
• Arcadia users get a reduction in fees paid in stAAA

The fee rebate will be calculated as a percentage of the fees paid by the user, capped at 20%.

• The USD value of the amount of fees paid, V_{Fees}.
• The USD value of the amount of AAA staked, V_{AAA},
• The net USD value of all the users accounts, V_{Accounts}.

Rebate = V_{Fees} * MIN(20%, A * V_{AAA} / V_{Account})

In practice, a user would need his stAAA holdings to meet a percentage of his account value to be eligible. This scales together with the account value. For example, a user with a $1,000 account would need $100 stAAA to receive a 10% rebate. A user with a $1,000,000 account would need $100,000 stAAA for that same 10% rebate.

The system is designed to be easy and flexible. Every two weeks, Arcadia takes your average account value & stAAA holding and looks at their ratio. Whatever your ratio is, that is what will define your rebate. There are no ‘steps’ or ‘levels’ you could miss out on.

Note the constant ‘A’ , to be determined in this discussion. Examples:

• If A=1 and V_{AAA} / V_{Account} equals 0.1 then you get a 10% rebate
• If A=0.5 and V_{AAA} / V_{Account} equals 0.1 then you get a 5% rebate
• If A=2 and V_{AAA} / V_{Account} equals 0.1 then you get a 20% rebate

Alternatively we can use a factor sqrt(V_{AAA} / V_{Account}) instead of V_{AAA} / V_{Account}. This would make it easy to get a few percentages as rebate but users need a lot more AAA to get close to the maximum % of rebates.

The rebates would be claimable every two weeks.

Option 2: Build PoL

Part of the fees are used to build protocol-owned liquidity positions, particularly in staked Aerodrome Slipstream pools. We propose using 10% of fee revenue.

By using staked Aerodrome Slipstream, an amount of AERO will be earned as staking rewards, which can be accumulated and used to vote on additional emissions for the AAA/USDC pool.
Down the line, this voting power might replace the current weekly AAA incentives towards the Slipstream AAA/USDC pool, reducing the spend of AAA from the treasury.

This option provides a good balance between community value creation and protocol sustainability. The protocol-owned liquidity will serve both as a revenue source and a strategic asset.

Option 3: Keep fees to reinvest in the protocol

This option would be most valuable to strengthen the protocol for future developments. Although no exact details are provided in this proposal, such additional revenue could be very well used for additional audits, a war chest, marketing budget, team expansion, etc.

Summary:

Option 1: Fee Rebates

• Pro’s:
  • Direct incentivisation to hold stAAA
  • Reduced fees throughout the platform for Arcadia users
  • Alignment between protocol and users
  • Clear and transparent for users
  • Direct engagement and “fun” activity to claim rebate
• Cons:
  • Direct outflow of assets from the Arcadia protocol to users
  • Some development work for rebate claiming infrastructure

Option 2: Build PoL

• Pro’s
  • Maintains value within the protocol
  • Sustainable alternative for protocol revenue through trading fees
  • Long term stability of trading pools
  • Minimal development overhead
• Cons
  • No immediate incentivisation to hold stAAA
  • Less engagement and noticeability by the community
  • Requires a long-term perspective mindset

Option 3: Keep Revenue

• Pro’s:
  • Maximum extension of operational budgets
  • Flexibility addresses immediate needs
  • Direct investment in protocol and growth
  • No development overhead
• Cons:
  • Provides no immediate utility for (st)AAA
  • Misses opportunity to strengthen tokenomics
  • Least community engagement

We invite the community to discuss the options above, and are welcoming other viable options or strategies.

Protocol revenue in DeFi is often misunderstood. At Arcadia, we define revenue strictly as funds flowing directly to the protocol treasury through user fees. Because the team runs an intentionally lean cost base, each new dollar of revenue pushes us rapidly towards profitability. But we’re not there yet.

Our current fee structure can be found here. Do note that the core team prioritises Arcadia’s long-term success over short-term price swings.

[ilo_0x]

Some options to look at for the rebates.
These all plot the % reduction of the base Yield Success fee.
The maximum is set to a 50% reduction in fees.

Option 1 is just linear. Simple.

Option 2 (red) has the advantage of incentivizing users to get started holding some tokens. The optimal efficiency is around holding 30-40% of your account value as AAA tokens.

Option 3 (purple) has the advantage of incentivizing to max out their rebates. The optimal point is at the max (50%) rebates.

• Less rebates for holding only a small portion of AAA
• Reduced cost to the protocol could be funneled towards PoL
  Since we will on average pay out less rebates with this option, the protocol retains a surplus when compared to option 1 (linear).

Option 4 (light) has the advantages of option 3, while also incentivizing holding a small bag to get started.
Note this option would include a minimum % of tokens. The minimum could be set to holding 5% of your account value as AAA, which would grant a 5% fee rebate. Thanks to Xu Zhao for the input.

[CantaloupeBob]

Overall, Im in favor of option 1 of the proposal. While I also like the idea of option 2, I believe that may be better suited for a later stage once Arcadia is a more established entity within the greater ecosystem.

There are predictably more eyes on the protocol right now, given today’s AAA price spike. This seems like an opportune time to capitalize on that momentum by driving more activity through stAAA rebates. I think this approach will ultimately contribute more to long term success as opposed to immediately accumulating PoL.

Wrt rebate curves, I like Option 4 of ilo’s post. Dont see any downsides really other than potentially “punishing” smaller portfolio’ed users who may not have the funds to to qualify for a higher rebate. Since its relative to their portfolio, however, this may be a tiny subset of users. Additionally, if the exact curve wasn’t initially adequate, I’d imagine it could then be changed without dramatic effort, but I definitely could be wrong there.

[KasperLoock]

I believe moving toward POL is the right direction. Arcadia needs to grow its TVL, and realistically, the token price remains one of the most effective GTM levers. Establishing a stronger price floor can also boost confidence among users and signal long-term stability of the protocol.

[allprojam]

I advocate for Option 2, ‘Build Protocol-Owned Liquidity,’ as it provides the most strategic long-term value. To further enhance this proposal, I suggest a hybrid model that also incorporates a direct benefit for token holders.
Specifically, while the protocol uses fees to establish its PoL in the Aerodrome pools, a portion of the resulting $AERO rewards should be distributed to $stAAA holders. This creates a synergistic outcome. Even a small percentage of these rewards, along with $Odos rewards accumulated through Arcadia protocol usage would be highly beneficial. This approach allows Arcadia to build its sustainable liquidity base while also providing multiple direct, compounding revenue streams to its most loyal supporters.

• For the Protocol: It achieves the primary goal of building a sustainable liquidity foundation and reducing future treasury spending on incentives.

• For Token Holders: It establishes an additional, tangible revenue stream, directly rewarding those who stake their tokens and commit to the protocol’s success.
  This model, proven effective by other protocols, ensures we are simultaneously investing in long-term growth while providing immediate and ongoing value to the community.

[DeFi_Voyager]

At first, I thought the third option would be the best one, since the project is growing really well and improving the product, but damn, it’s crypto — and I really don’t want AAA to crash by 90% after that decision. Honestly, I wish we had a better idea of how the team is doing financially — like, are things actually going well, or is it bad enough that reinvesting the income into the project is actually the smarter move for now? It would be great to understand stuff like that.

[allprojam]

Arcadia.finance will dominate through agentic use. Let virtuals spit out agents we give them purpose & ability greater than simply staking $eth. Truth terminal needed $AAA

[KasperLoock]

I have just voted for option 2 with for the following reason:

I think the main issue Arcadia faces right now is limited TVL. A stronger token price would do wonders for that — when users see a token that’s worth farming or holding, they’re much more likely to deposit. It creates a natural incentive loop and boosts word-of-mouth growth.

That’s why I support Option 2. Using fee revenue to build protocol-owned liquidity gives AAA deeper, more stable markets without relying on inflationary emissions. It supports the token price indirectly and gives confidence to new users that the token actually has long-term value. Over time, that draws more deposits, strengthens the ecosystem, and reduces reliance on short-term yield hunters.

This is the sustainable play. Feels like the right move if we’re thinking long-term.

[MasterMojo]

I second this and am voting option 2.

I also think we need to increase fees in the future; right now they are very low.