TIP-106: Experimenting with a tBTC fee rebate for locking T tokens

[JohnPackel]

Vote Type: Token holder DAO snapshot, single-choice voting (yes/no/abstain)

DAO-elected sponsor: John Packel

Timeline: 7-day discussion period followed by 7-day Snapshot vote

Purpose

Threshold Labs proposes to test the market appetite for an automated, instant bridge-fee rebate based on locking T tokens. We expect that DAO discussion and tLabs delivery of an initial feature will provide valuable learnings for development of mechanisms and tokenomics that more closely tie T value to tBTC success, encourage long-term staking and alignment with tBTC strategy, and improve the tBTC / BTC price peg.

Hypothesis

The introduction of a locked T–based rebate on bridge fees will open new trading opportunities for professional market makers by enabling tBTC / BTC arbitrage with enhanced capital efficiency. By requiring users to lock T in a contract as a prerequisite for rebates, this mechanism will increase demand for T and encourage arbitrageurs to lock significant T positions. In turn, the rebate of bridge fees will reduce tBTC’s persistent ~20+ bps discount to BTC (attributable to the current 20 bps redemption fee) by facilitating more frequent, fee-free redemptions.

Proposed feature: bridge fee rebate for locking T tokens

In the pull request proposed here, users receive an instant rebate on their bridge fees by locking T tokens in a contract. The more you lock, the more your bridge fees are reduced.

Details:

• For every 100,000 T an address locks for 30 days, the system enables a rebate capacity of 0.001 tBTC

• The 30-day lock is a rolling window, enabling users to control their rebate capacity in real time

• Rebates are applied per address and are non-transferable

• When an address bridges tBTC, the system checks for current rebate capacity and applies the appropriate amount (e.g., an address with 100,000 T locked can redeem up to 0.5 tBTC with zero bridge fee)

• An address may unlock any amount of locked tokens, which will instantly reduce their rebate capacity proportionally

• The cooldown period for unlocking T tokens is 30 days, after which unlocked tokens are returned to the address’ control

Example rebates:

* Amounts are per address and reflect the current redemption fee of 0.2%. If governance later changes the redemption and/or mint fee rate, no code update will be required (unless governance intends to change rebate ratio).

An illustration of the flexibility this approach offers:

Rebate capacity is calculated on a rolling basis over the past 30 days, so a user with 2 million T locked earns 0.02 tBTC in potential rebates (i.e., the ability to redeem up to 10 tBTC with zero bridge fee, when redemption fee is set at 20 bps).

• Day 1: redeems 5 tBTC (no fee)

• Day 15: redeems 5 tBTC more (no fee)

• Day 16–30: any additional redemptions are charged 0.2% (unless they lock additional T*)

• Day 31: 0.01 tBTC of rebate capacity is regained

• Day 46: Another 0.01 tBTC of rebate capacity is regained

* Users may lock more T tokens at any time to instantly increase their rebate capacity.

DAO retains control over parameters

With this proposed feature, the DAO will retain full control via governance over:

• Lock-to-rebate ratio

• Duration of both lock and cooldown periods

• Cap on how much rebate capacity may be earned, globally and per address, if any (the proposed implementation has no caps)

• Both mint and redemption fee rates (these aren’t addressed in this TIP, but reminder that they are governable)

Testing the model

tLabs is in conversations with interested parties to trial this new model. These test cases will be used to validate the concept in terms of business viability, lock-to-rebate ratio management requirements, and impacts on DAO revenue. Findings will be shared at a later date, at which point a decision will be made to expand or retire the initiative.

Timing of changes

DAO approval of TIP-93 part 4 set a 30-day delay for fee changes. We propose that upon Snapshot approval of TIP-106, tLabs may deploy the rebate mechanism outlined above.

[Eastban]

Thanks for putting forward TIP-106 — it’s a promising mechanism and a great starting point. It offers • Fast, minimal implementation
• Market-friendly trial with institutional partners
• Can validate real-world impact on tBTC peg, volume, and demand for T

But I think we need to propose a broader plan with a strategic lens around tokenomics alignment, DAO sustainability, and how institutions will perceive this initiative.

---

TIP-106 Needs Guardrails

While TIP-106 introduces a mechanism that can link T utility to bridge usage, I think it also comes with several critical limitations:

1. DAO Revenue Loss

The current model offers perpetual fee rebates in exchange for a one-time T lock, with no mechanism to gradually recover revenue (e.g., decaying rebates, stake inflation, progressive rate curves). That’s extremely generous — especially to large institutional actors — and currently uncapped, irreversible and permanently waiving bridge fees for a single lock-in unless the stake is withdrawn.

2. Treasury Burn is Real

The DAO has real ongoing expenses:

• Network & betastakers costs
• Incentives for tBTC liquidity, integrations, and L2 expansions
• Contractor payments to tLabs for development, growth, and marketing
• Other general DAO expenses

All of this is currently funded from the DAO treasury, with one sided bridge activity as the only source of revenue.
Without a sustainable income stream — like protocol fees — treasury burn will be critical.

---

Reintroducing Fees :

Therefore I strongly propose that we:

• Reinstate a 0.3% mint fee (ending the current mint fee holiday)
• Increase redemption fees to 0.3%

This achieves multiple things:

• Incentivizes T locking more effectively
  A higher fee baseline makes the rebate more valuable, increasing the incentive to buy and lock T.

• Drives meaningful demand for T
  Every BTC bridged is either paying a fee (generating DAO revenue) or creating new T demand (from users who want to waive fees).

• Fairly segments the market
  Institutions and high-volume users can lock T and operate fee-free. Casual or one-time users pay a modest fee for the service. Either way, the DAO wins.

• Funds the roadmap
  Revenue pays for integrations, liquidity, and growth — accelerating tBTC adoption and improving the peg.

---

Institutions Don’t Engage With Testbeds

If we’re trying to attract serious users and institutional capital, we need to project tokenomics discipline and long-term credibility. I don’t think that a “test program” with no clear roadmap, decay model, or escalation mechanism will cut it.

It risks signaling a lack of economic foresight — and that the DAO is willing to give away long-term value without clear boundaries or goals.

Institutions are not looking to “test things” — they are looking for programmatic clarity, governance alignment, and predictable mechanics they can build around.

---

Let’s Build the Full Model

TIP-106 is a good first step. But I believe we need to move quickly toward a more complete fee model that includes:

• Long-term fee policy (0.3% mint + redeem)
• Rebate decay schedule (e.g., 100% → 80% → 60% over 3 years)
• Stake escalation (100k T → 200k → 300k for same rebate over time)
• Progressive ratios or rate curves (to avoid over-rewarding large actors)
• DAO-controlled caps if needed

[student]

This is a great discussion.

I agree that we should have some kind of decay but want to also discourage hopping between locks to reset clocks/purge decay schedules. Is there some way to reward actors for locking T for a long amount of time?

Perhaps the rebate is some function of T locked and time locked which accrues while a decay schedule progresses (ideally on a continuous basis as opposed to annually/monthly - otherwise people could jump out prior to the next decay click)? If tuned right, could this provide an incentive to regularly lock more T to maintain a net rebate rate (like the decay schedule gets more aggressive than the time schedule so you have to lock more T to make up the difference)?