Tezos delegation services: 0% fees, Booster APRs and the threat of Baker Cartelization
Howdy folks. It's been about 45 days since we started our new Tezos Baking delegation service on YieldWallet, and the experience has been full of dynamic changes, news, dos and don'ts and technical learning. We've also gotten to know the Tezos community a lot better and if the interactions and the passion are any indication of the Coin's future success, Tezos' future sure does look very bright.
We got the timing just about right (sarc) and came to market at around the same time as Coinbase and Binance (talk about swimming with Sharks!). We're more than happy to compete as a small baker by offering a superior service with more of a focus on what's good for the community.
For Instance, we have a number of Open source projects under development right now that will distinguish us from the larger Exchange-based delegation services when they are released.
The 0% Fee
However, there are a few clouds on the horizon that we'd love to see dispelled to ensure the health of the Tezos ecosystem. Binance announced that they would be at a 0% fee for their Delegation service and all a user would have to do to earn rewards is leave their XTZ on the Exchange. The cost of the service (0 is good!) and the convenience of not having to take any further action is quite compelling, if one does not care about custody and ownership of their Tezos private keys or the Decentralization of the network. This post is directed at those who do.
The introduction of a few 0% fee bakers threatens the decentralization of the network as all the delegated Tezos will have a tendency to move towards a set of large players that have 0 or extremely low fees. This will lead to the Cartelization of the network and bring the health of the ecosystem into question. If this comes to pass, then we, the Tezos community would have sacrificed the long term viability and promise of Tezos in the interest of saving a few XTZ in fees (The math is in a section below).
12% APR on Tezos!
There is even a service that offers as 12% APR on Tezos, with the catch being you have to send your XTZ to them (similar to Binance). However, they shall remain unnamed as we dont want to offer them an advertisement and they are likely a scam. While the jury may be out to some extent on the impact of 0% fees on the space, Not much of a case needs to be made that this 12% APR initiative is more than likely to do a lot of harm to the space and the health of the ecosystem.
These are classic loss leaders setup by players with extremely deep pockets. A price war is what they seem to want. The intent is to potentially drive small bakers out of the business, without realizing that the long term consequence is that this will just hurt the Tezos price and therefore the value of the very thing you're trying to monopolize. There is no other explanation for a 0% fee from Binance. If anyone has one, please chime in, in the comments section.
The math
Just how much money would one save by delegating to a 0% fee delegate.
XTZ holding = 10K XTZ
Current Yield ~6.5%
Earnings per year 650 XTZ
Delegate fees (Yieldwallet is at 8%) = 650 x 8 / 100 = 52 XTZ per year.
Is 52 XTZ per year a good price to pay to a small delegation service to maintain the health and decentralization of the system, likely leading to an increased XTZ price, all other things being equal?
We think so. And we hope you do too. :-) And just to sweeten the pot a little and nudge you to our service: We are matching Binance' 0% fee until March 31st 2020 after which we'd like to pay our bills (we don't have the world' largest exchange to bankroll us) and will go to an 8% Fee. We also pay Frozen rewards, so no waiting for your rewards until they are Unfrozen.
How to delegate
To delegate to YieldWallet, you can follow the instructions here
Our Baking delegation address is tz1Q8QkSBS63ZQnH3fBTiAMPes9R666Rn6Sc
Additional reading
Check out this amazing twitter thread on the topic: https://twitter.com/AriannaSimpson/status/1207708845214175233
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