Hop Protocol

There have been several conversations among community members regarding introducing protocol fees for Hop. Currently, fees go solely toward paying supply-side participants such as AMM LPs and Bonders. There have been $7m total fees collected to date!

Even a small protocol fee would provide significant funding to help cover general DAO expenses such as development costs, grant programs, foundation costs, and more. With the development of Hop v2, we have the opportunity to introduce a Protocol Fee Switch to each module (messaging, token bridge, nft bridge, etc.) to help cover general costs in the DAO.

The introduction of a Protocol Fee Switch also gives us the opportunity to enshrine a commitment to public goods funding directly into the protocol. It’s important to remember that Hop is built on the shoulders of giants. We wouldn’t be here today if it weren’t for Ethereum and the many other public goods that exist because of the Ethereum community. Diverting a portion of fees would allow Hop to give back to the Ethereum community and the broader world perpetually through public goods funding.

Proposal

A protocol fee switch should be added to each Hop module produced by Hop DAO. In addition, a minimum of 10% of fees collected by the DAO from each module should be diverted to public goods funding outside of the immediate Hop ecosystem.

Execution

All protocol fees will be initialized in an off position. The protocol fee can only be set by a direct on-chain vote after the full governance process.

The minimum public goods funding percentage can be enshrined directly into each fee collection mechanism. Once enshrined, Hop DAO will be able to control which address receives the funding (e.g. a Public Goods Grants Committee) but will not be able to lower the public goods funding percentage below the minimum. When the DAO sweeps fees from the module, the public goods portion will be automatically diverted.

These funds are intended for public goods that benefit the broader Ethereum community or world and not for public goods directly within the Hop ecosystem. Grants within the Hop ecosystem are better served by the currently proposed grant program or something similar.

Acceptance

Because this proposal has no immediate on-chain action, it will be considered accepted after a passing Snapshot vote.

The DAO should authorize and fund engagement of a law firm to provide a legal opinion about the implications of instituting a fee switch before making any such proposal. If Hop Labs has already obtained one with their own counsel, they should share it with the DAO. This is the sort of the decision that requires nuanced and involved consideration given the regulatory and enforcement environment.

This proposal makes perfect sense from a business development and social responsibility perspective. Generating revenue while being able to give back a significant portion of fees to Public Goods is a great idea.

As a follow-up, will Public Goods Funding be undertaken under a new committee? If the answer is yes, should we expect a follow-up proposal if this proposal passes?

The DAO will need to determine how to handle public goods funding. This could be as simple as setting an external address (e.g. the gitcoin grants matching fund address) or setting up Hop’s own grant committee.

Given v2 will need to be deployed, and then a proposal to collect fees would need to pass, there’s plenty of time. We don’t plan to post the follow up but would encourage anyone who’s interested to do so.