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Protocol Fees

Dynamic Fees: Built-In Market Regulation​

Zhenglong uses a real-time, responsive fee system for all mints and redemptions. It works like a pressure valve:

  • Under normal conditions, fees are low - maybe 0.25% for minting zheTOKENS and 1% for minting steamedTOKENS.
  • If the system is at risk (e.g., someone tries to mint a large amount of zheTOKENS), fees scale up in proportion to how much stress the action would cause.
  • If the system needs help - for example, to improve its collateral ratio - it can offer zero or even negative fees, essentially paying users to take helpful actions like minting steamedTOKENS.

Tiered Fee Structure​

Fees are tiered: if a large transaction pushes the system past certain thresholds, higher fees apply to the portion that causes the most stress. This makes things fair - users only pay for the impact they actually cause.

Why It Works: A Feedback Loop That Balances Demand​

This fee system creates a self-correcting market:

  • If everyone wants zheTOKENS, it becomes increasingly expensive to mint zheTOKENS and cheaper to mint steamedTOKENS, encouraging balance.
  • If everyone wants leverage, the opposite happens - zheTOKENS minting becomes cheaper, drawing users to the stable side.
  • Arbitrageurs and advanced users will step in to exploit these dynamics, ensuring no imbalance goes unchecked.

System Integration​

Together with Stability Pools (which manage ongoing systemic risk), the dynamic fee system helps Zhenglong maintain both flexibility and robustness. User behavior is steered gently - but powerfully - through financial incentives at the entry and exit points.

Key Benefits​

Automatic Market Regulation​

  • Fees adjust in real-time based on system needs
  • No manual intervention required
  • Prevents extreme imbalances before they occur

Fair Pricing​

  • Users pay fees proportional to the stress they cause
  • Large transactions that push thresholds pay higher rates only on the excess
  • Small transactions remain affordable

Incentive Alignment​

  • The system can pay users to take beneficial actions
  • Negative fees reward behavior that improves system health
  • Market forces naturally maintain balance

How It Affects You​

  • Small transactions: Minimal impact, low fees under normal conditions
  • Large transactions: Higher fees on portions that stress the system
  • Beneficial actions: Potential rewards when the system needs rebalancing
  • Market timing: Better rates available when acting counter to crowd behavior