add fee optimizations utilizing #defi
@@ -55,9 +55,54 @@ liquidity improves at the expense of capital efficiency.
// full data: https://docs.google.com/spreadsheets/d/1rG9XS6xJbulltwKBMfszfkHeqG5Bl6JboIpIjO1Qn3Q/edit#gid=0
image::tbtc_bonds.png[]
+Note that each deposit yields fees based on the lot size, and **not based on the collateral's
+size**. Due to overcollateralization, from a fees perspective, an ETH backed
+deposit yields less fees per locked up BTC value in ETH, compared to a TBTC backed deposit.
+
+Example:
+
+1 TBTC is minted by backing a Deposit with 75 ETH (1.5 BTC value in ETH). Per
+annum, 0.005 TBTC is paid as fees to the signers, resulting in only `0.005/1.5 = 0.003
+TBTC` revenue per locked BTC value in ETH. If TBTC were used as the backing asset, the
+deposit would be backed with 1 TBTC, hence generating `0.005/1 = 0.005 TBTC` per
+locked BTC value in TBTC, which is superior to the ETH case.
+
In the next section, we explore potential approaches towards
maximizing the fee revenue of signers by leveraging decentralized finance
lending and market making protocols.
== Optimize returns on Signers' bonds
+
+As explained in previous sections, the supply peg of TBTC to BTC is safely
+maintained through mechanisms which rely on Signers overcollateralizing
+deposits. Signers are rewarded with a
+link:../custodial-fees/index.adoc[fees] denominated in TBTC. In order to make
+the system attractive to Signers and incentivize them to lock their ETH or TBTC
+these fees should be sufficiently high without incurring a large cost to the
+users of the system who want to minimize fees.
+
+As illustrated recently by the
+link:https://www.reddit.com/r/MakerDAO/comments/b5zgdl/no_loss_lottery_with_dai/[No-Loss
+Lottery], leveraging the "decentralized finance" software stack can convert
+zero-sum games, to positive-sum.
+
+Following that approach, signing bonds can be used in lending or market making
+platforms like link:compound.finance[Compound Finance] or
+link:uniswap.io[Uniswap]. This would mean all signers would make returns atop an
+approximation of the risk-free fees generated by the bond on the used platform,
+improving their overall returns per unit used to back a Deposit.
+
+These advantages come at the expense of added complexity around fund seizure (in
+case the bond is not liquid due to being under control of the chosen platform.
+Such reliance on third-party applications may bear significant risks,
+as a result this tBTC functionality should be upgradeable (based on work token
+governance)
+// is this correct?
+and should be easy to disable to account for potential security issues in the
+external contracts.
+
+Finally, each signer should be able to choose the platform where their bonds
+will be used to increase their returns, depending on their risk profile. Signers
+that do not want to bear third party risk should be able to opt-out of their
+bond being lent out.
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