Proposal: Disable Protocol Fees on Yearn V3

Proposals Protocol and Governance
1

Authors

V3 Protocol Team

Summary

This proposal seeks approval from the Yearn community to disable all protocol-level fees within the Yearn V3 vault system across all deployed chains. This change aims to enhance growth, simplify the user experience, and foster greater adoption among third-party protocols.

Abstract

The Yearn V3 system has seen encouraging adoption by partners, but the revenue generated from protocol-level fees has proven insignificant in terms of Yearn’s overall financial performance. These fees, while nominal, introduce unnecessary complexity, confusion, and friction, ultimately limiting the adoption and growth potential of Yearn’s infrastructure. Eliminating the protocol fees will simplify integration and incentivize more third-party protocols to leverage Yearn’s V3 infrastructure, thereby extending Yearn’s ecosystem and reinforcing its position as the preferred standard for ERC-4626 yield vaults.

Motivation

The Yearn V3 vault system was developed with a vision of simplifying yield generation and providing a robust, standardized foundation (ERC-4626) for DeFi protocols. While usage metrics indicate a positive reception among partner protocols, the collected fees have had minimal impact on Yearn’s bottom line. Conversely, the existence of these fees has introduced:

  • Increased complexity in vault deployment and management.
  • User confusion around fee structures
  • Hesitancy from third-party protocols to fully integrate Yearn’s vaults due to perceived competitive disadvantages or increased operational complexity.
  • Those that have integrated have tended to use it in a way that avoids the protocol fee, with a few teams choosing to fork the code instead of use the official releases.

Specification

If approved, Yearn’s protocol fee parameters for the V3 vault factories will be set to 0.

This action will not impact existing performance or management fees collected by individual vaults.

Benefits

  • Reduces operational complexity for Yearn and integrating partners.
  • Clarifies and streamlines fee structures for end-users.
  • Increases competitiveness of Yearn’s V3 vault infrastructure.
  • Potentially expands Yearn’s ecosystem through increased adoption and usage of its technology.
  • Indirectly boosts Yearn’s brand visibility and establishes greater industry influence.

Risks

  • Short-term reduction in nominal protocol fee revenues.
  • Possible perception that fee-free infrastructure is less sustainable, though mitigated by maintaining existing management and performance fees on Yearn-managed vaults.

Voting

Voting will occur through the standard Yearn governance platform:

  • Yes: Approve proposal to set V3 protocol fees to 0% across all chains.
  • No: Reject proposal and maintain existing protocol fee structure.
  • For
  • Against
0 voters
1 Like
2

Can you confirm the impact on the current fees and what the fees would be if this were to pass.

From the docs:

The V3 system sees the introduction of “Protocol Fees” to the stack, a percentage charged each time a V3 vault or strategy “reports”.

Protocol fees give the managers of vaults and strategies complete control over the fees charged while rewarding Yearn for supplying the infrastructure those vaults are built on.

Yearn Governance dictates the amount of the Protocol fee and can be set anywhere between 0 - 50%. Yearn governance also holds the ability to set custom protocol fees for individual vaults and strategies. Allowing full customization of the system.

profit = 100
performance_fee = 10%
protocol_fee = 10%

total_fees = profit * performance_fee = 10
protocol_fees = total_fees * protocol_fee = 1
performance_fees = total_fees - protocol_fees = 9

9 would get paid to the vault managers performance_fee_recipient.
1 would get paid to the Yearn Treasury.

So this is proposing that the protocol fee portion goes to 0, with the performance fee remaining adjustable by the strategy/vault deployer. According to the example above, the strategists are the ones who gain from this as the protocol fees come out of their fees.

Do any fees go to the treasury if this passes? Is that a secondary negotiation with a strategist using a split?

1 Like
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All else being equal, the those that manage vaults and strategies will get a higher amount of fees without the protocol fee yes.

Though at the moment the primary amount of fees in the system are taken at the multi strategy vault level through Yearn managed vaults. Of which the Yearn treasury is the primary beneficiary of. So Yearn will still make the revenue from this the same way as it did before.

Any other splits whether it be strategies or third party protocol would be out of scope though from this specifically and can be managed in any way desired.

4

Can you ELI-5 why and how multi-strategy vaults benefit the Yearn treasury over others, and this change doesn’t impact this dynamic? I think I am missing some dynamic.

5

The fees from the yearn managed multi strategy vaults, like the ones displayed on Yearn Vaults, primarily goes to the Yearn treasury. Most of the rest of the strategies, and non yearn managed multi strategy vaults either have no or a lower split going to the yearn treasury.

These vaults specifically having no protocol fee simply means all fees are routed through the normal accountant fee flow instead of 80% through accountant fees and 20% through protocol fee flow.

1 Like
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Vote for this is live: https://snapshot.box/#/s:veyfi.eth/proposal/0xa3223b388c484ea8a81b60bb88cda99f23d6d06b4b9798b4d0acafaa2207b686/votes

Sorry for the late notice

1 Like
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