Refraction Fees

Introduction

Through the protocol, we further created another novel mechanism called the Refraction Fee. The END tokens are the yield tokens being provided backed by the yield of the bond depositors. In order to provide the bond depositors with an incentive and reward for providing their liquidity of yield to the protocol, we instill refraction fees to the platform.

Trading Fees

By trading the END tokens, a fee on transfer is taken which are paid to the bondholders. This means that by trading the tokens, bondholders are rewarded for providing the yield backing the END tokens, and thus creating a platform for trading their yield. By doing so, they are paid a trading fee from all token transfers. This pays back to them, providing them with potentially superior yields for the LST liquidity.

Rebasing Fees

In addition to trading fees, the bondholders are also paid a fee coming directly from the rebasing rewards, which is all the yield of the LST deposits in the bonds generated over time, compounding within the treasury.

This means that all future bond depositors will receive a fee for the previous bond deposits yields which become part of the treasury assets backing the END tokens.

Refraction Index

With the introduction of refraction fees, there is an attribute which each bond NFT has, called the Refraction Index, which basically means that the refraction fees are distributed to the bonds in such a way that the longer the maturity of the bond, the more of the proportionate fees from the trading and rebasing of the END tokens are given to them. This further incentivizes long-term maturity periods, giving them even further yield potential.

The following table shows the increasing index by .01 over the period of the bond for each bond:

Bond Length, Days	Refraction Index
0	1
5	1.05
10	1.10
15	1.15
20	1.2
30	1.3
60	1.6
90	1.9
180	2.8
360	4.6

In an example, if we have a refraction fee of $1,000, depending on the bond value, and it’s refraction index, the distribution would be like this:

Bond Value	Refraction Index	% of Total Value	Fee Distribution
$10,000	1.5	0.63%	$6.32
$50,000	2.3	4.85%	$48.52
$100,000	1	4.22%	$42.19
$200,000	1.2	10.13%	$101.26
$500,000	1.6	33.76%	$337.55
$1,000,000	1.1	46.41%	$464.13

The fees are distributed proportionately based on the value of the bonds, but the refraction index offsets that percentage by paying more fees to bonds with a higher index. This means that bonds with a lower value overall, can potentially earn more fees by having a greater maturity and index, making it rewarding to hold longer-term bonds.

The formula for the refraction fee distribution is as follows:

$$Fee Distribution_i = (\frac{Bond Value_i \times Refraction Index_i}{\Sigma_{i=1}^{Index} Bond Value_i \times Refraction Index_i} \times 100) \times Total Fee$$

Bond Fee Multiplier

Based on the bond fee set, there will also be a multiplier applied to the refraction index increment shown above. For every 1% fee, the index increment will increase by 1%. That means if user sets 100% bond fee, the index increment will become .02.