Agree here with the core statement but I feel another post / YIP is probably better than mixing it with this discussion.
Your math doesnāt include the current 5% gas subsidization fee. The comparison we should be making is the difference in fees between the current 5% harvesting fee vs. 5% fee on profits.
I put together a simple model that shows the fees that have been collected since inception based on the same Dune dashboard you used (model here).
My math is not perfect - Iāve found it hard to dissect how the harvest fees are collected/calculated, and I suspect they vary by strategy and vault. But directionally and intuitively, I think the answer is the same as my model suggests. A 5% fee on profits generates an order of magnitude more fees and grows more proportionately to AUM growth, as compared to the 5% harvesting fee. The point of this YIP is not to be rent seeking or risk the growth in AUM. At the end of the day, if youāre not willing to pay 5% on the yETH vault that is paying out ~60% APY, then thatās ok. These strategies, and strategy creators deserve to be paid. These vaults are not your standard cookie-cutter ETFs. I liken them to a sophisticated algo trader.
If we want to incentivize the best talent to build the most profitable vault strategies and ensure that the DAO/treasury has enough resources to fund ongoing development and cover rising gas fees, then implementing this YIP to charge [5]%* on profits feels like a fair approach. I personally donāt think it will hinder growth or the dominant position that yEarn has grown into.
If anyone has better data on harvesting fees, Iād love to see it to update the model. Last, [5]% is a placeholder. Open to ideas - some have suggested as low as 2% others have suggested a dynamic fee escalator.
Thanks for all the input.
4 Likes
Yes, my comment is related to this but I wanted to offer some alternatives to be constructive. My main point is allocating so much to some and not others could cause negative consequences for the ecosystem. Jealousy, bitterness, politics, etc. Iād prefer things to incentivized yet equitable.
Exactly my thinkingā¦ just I feel itās too important to have it get buried in this.
Waaaait here I have an issue and I feel youāre mixing two things. One is the rebranding of the fee and another if/how strategy creators should be rewarded.
- First of all, the current model of 10% was not grand-fathered in or approved, which I find a bit interesting to say the least giving that itās a pretty touchy subject.
2)The rate is absurdly high. - And what to me is the kicker, rewarding every strategy creator the same. Guess what the next delegated vault Iāll come up with this incredible strategy that provides {asset} to Aave and takes out DAI and puts it into the yDai vault. Does that make me sophisticated? Worth 10% in perpetuity?
Iām all for creating incentives to attract brilliant minds with original ideas, but this model as is, is not doing that, it will reward the people that are first and fastest at copying a already existing strategy. Anyways, Iāll probably write up something in regards to that at some point.
4 Likes
i vote yes.
hedge funds charge 2% yearly and 20% on profits.
5% performance fee is a steal.
I vote yes 100% to this.
I want the best and brightest minds coming up with alpha generating strategies on the YFI platform and incentivizing them properly is step #1.
2 Likes
Get the gas working and have vault users pay the right amount for gas. Other than that charge minimal fees. We want to bring in AUM not have it leave the system. I will vote against this, and am for ideally 1% or less for fees. YFI needs to not be too arrogant on grabbing fees or people will leave to other platforms yfii to name one, they would GLADLY undercut us on fees to get more AUM. Yall want more ecosystem profits? Letās make more products that people use for low fees. We want to be the Vanguard or ETFās of crypto. Anything we do is public and forkable, yes even our strategists.
10 Likes
Vote: YES - thank you very much - people already think they pay 5% of profits.
4 Likes
Isnāt this the status quo? 5% when harvested and 0.5% withdrawal.
Link to banteg explaining this:
^^^^^^^^^^^^^^^
THIS
^^^^^^^^^^^^^^
The performance fee works already in exactly the way proposed by OP. This can be closed.
1 Like
Thatās not true. Please try to be honest and be part of the discussion without trying to shut down other people. This is a community project and it is always way better to voice yourself nicely than to try to be the iron fist.
The 5% from harvest is different than the 5% performance fee from what I understand.
2 Likes
After consideration, my opinion has shifted somewhat. The proposer points out there are three different types of income (for Curve-based vaults) and thereās no fee on two of them. But actually, to use the example of the yUSD vault, it is presented as a product where you deposit yCRV, and on withdrawal receive yCRV. In that context @thegismar is correct that a 5% fee on performance is the status quo.
If we look at comparables, both harvest.finance and Delphi only allow deposits in stablecoins, forcing them to be wrapped on deposit and unwrapped on withdrawal, in which case you could argue all types of yield are part of the productās performance. In yearnās case, the profits accrued by the Curve pool are external to the vault, as are its risks (particularly depeg risk).
Therefore, the only thing that needs changing is the documentation, to explain clearly how the 5% fee works. Andre and others have worked hard on the vaults. There is no need to justify charging a fee for them. I think we can remove mentions of subsidized gas and simply say that the performance fee includes gas and other costs.
6 Likes
This is exactly what should be done with some slight modifications.
We should be proposing what % everyone is comfortable with and happy to pay from profits - eg a vote for:
5%
7.5%
10%
These profits should be entirely used to buy back YFI and distribute proportionately to holders staking in governance.
The entire point of YFI is to use it for voting, if incentives were aligned where all fees from the vault are used to buy back and distribute to governance stakers we have multiple positive impacts.
- Those that are supporting the true use case of YFI are being rewarded accordingly.
- Significantly lowering circulating supply
- Buy back pressure increases value of YFI being held.
Combining these three factors would create a limitless value cycle to YFI and its true use case of governance.
6 Likes
If the fee is dispersed to holders in governance you are not losing out at all, it is rewarding those that are using the token for it true purpose. If you are utilising the Vaults you SHOULD hold YFI and use it for governance, this would further encourage this to actually take place which isnt currently happening to the degree it should be.
If you stake your YFI in gov you would be at no loss with the fee on Vaults.
Personally I would be perfectly fine to go as high as 20% and it would be redistributed to me as I would be staking in Gov using YFI for its intended purpose anyway, and being rewarded accordingly
2 Likes
Could you please clarify that this performance fee would be used to Buy Back YFI and distribute to stakers? Its not currently clear and this would be the ideal model IMO
THATs the key to making this work, ensuring people use YFI for its intended purpose, reward them accordingly, reduce circulating supply and increase buy pressure.
Those using they vaults should own YFI and have it in governance anyway so they wont lose, everyone using this for its true purpose will reward accordingly
2 Likes
Thanks everyone for commenting. After reading your opinions I would also vote FOR on this proposal, particularly @thegismar explanation of why a deposit fee would alienate users. Paying staking rewards in YFI is a great idea that we should probably explore in another YIP.
2 Likes
I didnt mean to come off as aggressive or dishonest at all!!! I just this moment realized that what we were arguing about was pointless since I just then had read the example by OP out of the FAQ which I personally earlier had changed according to what i understood as gas subsidized fee and afterwards was corrected on, which is why it just came as a surprise to me to see it repeated here after having spent some time thinking about this and looking at some smart contracts exactly about this topic - and came to the conclusion that itās a fee that is taken whenever the strategy āharvests profitā and not only in step 3 of this particular exampleā¦
I didnāt mean or donāt think that my wording was particularly aggressive, maybe somewhat harsh- for that Iām sorry.
I have talked to the devs and the performance fee is the same as the fee for subsidized gas, to me this just needs a better wording (on which we are working) so that it is a easier sell to the customer than saying we take 5% from your profit - and we shouldnāt change anything else.
Since @TheSouthSeaCompany pointed out that we are already collected right at 5% of profits, I think this proposal does simplify things for users.
However, I think a bigger issue is thinking about what weāre trying to do here. As @banteg pointed out here YIP: Upgrade Treasury Vault to solve gas subsidy, gitcoin and more , we need to restructure how the protocol collects fees to make sure it covers the gas before paying treasury.
So really what we should consider is: after gas costs, how much should the protocol pay to governance/treasury? The answer obviously is some amount greater than zero, but where do we find that perfect number? At some point, gas costs will come down as ETH scales with L2 solutions (although they may also go up in the short/medium term). However, I donāt think gas should be a factor in this equation since no matter what, as any yield farmer/LP would need to do the same thing that we are sharing the cost of.
So realisticallyā do we want to charge gas fees + 2% of profits? Gas fees + 5% of profits? Iām open to really either of these (or other possibilities) but think it needs a lot more discussion.
4 Likes
Agreed. I personally like gas fees+5% profit because we already have the 5% harvest number out there. Less explaining to do and a good level of value as AUM scales. Open to hearing other takes on this thoughā¦ Excited to get this one to an official YIP vote 
Agree/Disagree
I am for the 5% performance fee on profits of the vaults but I disagree with the destination of the funds. If the current implementation is enough to provide the Yearn team with what they need then letās leave it alone.
However, a 5% performance fee could be redirected to more productive uses. Iād propose that the 5% fees are used to purchase $YFI and direct it to the those staking in the yearn.finance vault.
If a yearn.finance vault is going to exist to provide yield to those participating in governance then their return should be somewhat competitive with the other vaults.
1 Like