We should be considering the exit fee in this discussion. Some here have suggested that the exit fee is to cover gas. I am not sure that is true, but the discussion is also to cover gas before charging a % of profit fee, so if true, we would be double charging for gas. The fee may have been implemented to keep people in the pool longer. Regardless, it is a cost that should be considered.
Also, a vault token holder could avoid the exit fee by selling the vault token on the market (e.g. Uniswap).
A key element to the success here would be using the fee to buy back YFI and distribute to stakers.
= More Governance and buy pressure on YFI = more rewards for those using governance as YFI is meant to be
This is EXACTLY what should be done.
No one will be worried about a fee if they also hold YFI in governance as you recoup the fee spread across the people using YFI for its intended purpose.
This is the KEY element to success with this proposal, use the fee to buy back YFI and distribute to governance stakers
Thanks, YFI_Ranger. I’ll be releasing a YIP on Tuesday. Let’s make it happen!
I am not against the idea.
or
5% is probably too high in the long run especially once competition arrives.
In normal markets money managers get 1.5% so something arround 2-3% seems fair to me.
tho i said yes, I would prefer that this is done first Gas costs are too damn high
I totally agree on this, since ‘normal’ hedge funds takes even more percentage both yearly and also on profits.
Does inserting a fee create a margin for other protocols to compete/undercut yearn in the future?
Can fee instead be tied to gas savings that result from yearn’s large user base? If so, would this create a more powerful network effect for yearn (more users > more gas savings > lower costs for users)? Competing protocols can copy yearn’s trading strategies, but cannot copy reduced gas fees from large user base.
2% yearly and 20% on profits is the standard in the hedge fund world.
5% is a steal.
We want to attract the best and the brightest to come up with the best strategies with our capital. Incentives matter.
I think we lower it, as the incentive for users to keep their asset in the vault.
raising won’t make sense rn as more experienced and risk takers users have the chance to get better yield compared to YFI vault
5% is to be compared to 20%, no ? So not a steal at all I think - rather a pretty good deal compared to tradFi
2% yearly and 20% on profits is the standard in the hedge fund world.
5% is a steal.
Maybe I’m more of an idealist, but why are we comparing yearn to hedge funds? We have a new protocol that’s completely different from anything people have seen but we’re emulating something we’re trying to beat?
However, a 5% performance fee could be redirected to more productive uses. I’d propose that the 5% fees are used to purchase $YFI and direct it to the those staking in the yearn.finance vault.
This is EXACTLY what should be done.
No one will be worried about a fee if they also hold YFI in governance as you recoup the fee spread across the people using YFI for its intended purpose.
My concern with this is since YFI is limited, it will have diminishing returns as YFI price rises. Plus, this raises the barrier of entry for future clients. In theory they could participate in governance, but the price will be so high that most people won’t. And when there’s enough of a gap, it leaves room for competing protocols.
I believe a honest and fair protocol will attract the most client and developers, ensuring sustainability and maximum profit for this project.
What are we optimizing for?
In my opinion, we must optimize for profits.
As stated in the original post, no profits = no fees.
No fees = YFI price goes down.
Your concern that there will be “diminishing returns as YFI price rises” is valid IF profits stay the same throughout the whole life of this experiment. In the case of more strategies and profits, this is not the case. We must grow the pie bigger and bigger.
The main reason why the YFI price will be going up will be because it is a profit making machine for profits made now and profits made in the future by all the strategies on Yearn.
So if we are trying to optimize for profits, we must incentivize the best and the brightest minds to come to Yearn and come up with the best strategies.
I think your view is more short term thinking (respectfully).
Yeah I think 2% is better
I agree. It’s a win-win and aligns incentives of users, gov, and strategy creators. With this passing, it will be in all parties’ interest to grow investors’ deposits as efficiently as possible. “We win when you win” pricing narrative. Looks like votes are trending toward 3-5%. I like it. Hopefully we can go for snapshot vote soon?
What are we optimizing for?
I’m optimizing for the longevity of this project. I think profits will naturally follow if the project survives long enough.
Your concern that there will be “diminishing returns as YFI price rises” is valid IF profits stay the same throughout the whole life of this experiment. In the case of more strategies and profits, this is not the case. We must grow the pie bigger and bigger.
Currently, there’s a fixed 30k supply of YFI. And if yearn is a successful project, there will be little sell pressure for YFI. Meaning no matter how fast fees grow, it will never outpace YFI price growth (x vs e^x). The higher the fees, the more people want YFI, and the less incentives for YFI holders to sell. This creates a problem when future LP wants a stake in governance and can’t enter due to the high barrier of entry.
I can think of one way to offset this, and that is to hold the 500k community/development pot in YFI, buy/sell when it deviates from 500k, and pay bounties/development in YFI. This will create a sell pressure for YFI and promote YFI circulation. (though I’m not 100% sure if developers will sell their YFI)
So if we are trying to optimize for profits, we must incentivize the best and the brightest minds to come to Yearn and come up with the best strategies.
I think we already have protocol for this. Strategy writers already gets to decide how much of a cut they want for their strategy. The current yETH strategy charges 10% on top of the 5% fee on harvest. edit: 10% of the 5% when harvested (i.e. 0.5%).
Btw, I do appreciate your reply, and I’m glad both of us are trying to figure out how to grow this project.
Maybe I missed this in the thread, super long thread BTW, but what is Andre think about this? Just curious
Yah this is quite fun / exciting 