1inch vault not profitable

Because of the the performance and management it is almost always more profitable to stake you 1inch tokens manually than using the yearn earn vault. The advantage of using the vault is that the rewards get compounded but the extra profit of this is lower than the fees taken by yearn.

Assumptions

  • the only (used) strategy for this vault is Strategy1INCHGovernance

  • harvest gets called every 24 hours ( if called less frequently the problem gets worse)

Calculations
Below are my calculation based on the assumption that the vault gets harvested every 24 hours (which in my experience happens less frequently). As you can see the vault is only profitable ( in respect to staking manually) when the staking apy is higher than 50% which is very rare . FYI the current staking apy is 19% and it has not gone above 50% in the past month

APY APY daily compoudning apy vault(after fees) %less profit delta profit
10% 10,5% 6,4% 35,9% 3,59%
15% 16,2% 10,9% 27,0% 4,06%
20% 22,1% 15,7% 21,5% 4,29%
25% 28,4% 20,7% 17,1% 4,29%
30% 35,0% 26,0% 13,4% 4,02%
35% 41,9% 31,5% 10,0% 3,49%
40% 49,1% 37,3% 6,7% 2,68%
45% 56,8% 43,4% 3,5% 1,57%
50% 64,8% 49,9% 0,3% 0,15%
55% 73,3% 56,6% -2,9% -1,60%

formulas used:

Name formula/value
APY apy from staking 1inch token
Management fee 2%
Performance fee 20%
Apy daily compounded (1*(1+(APY/365))^365)-1
apy vault(after fees) Apy daily compounded*(1-performance fee)-Management fee
%less profit 1-(apy vault(after fees)/APY)
delta profit ( APY - apy vault(after fees)

Why should we take action
In my opinion because the average user would think it is advantageous to use yearn. But in this case the user takes on extra risk(smart contract of yearn vault, …) pays fees to yearn and gets nothing in return. There is also no easy way for a user find this out for them self except making the above calculations themself . So in the spirit of transparency and looking out for the users we should take action or at least notify the user.

Possibly actions

  • Lower the fees / make a yip to have the option to lower the fees in situation as these

  • Deactivate the vault

  • Make the fees dynamic (based on the stakingapy) , possibly hard to implement

  • Delist the vault from the yearn site and/or move it back to ape.tax

  • At least notify the user

PS:
please feel free to say something if you see any mistakes (spelling or otherwise). Or ask if i need to clarify anything

17 Likes

I agree, and I believe if put to a vote, voters will agree as well.

Worth noting the fees on competing services. Xtoken provides a 1INCH compounding service, which charges a 1% performance fee on top of a 0.2% deposit fee and a 0.2% withdrawal fee

If we were to remove the performance fee entirely, we would still be more expensive than that from our 2% management fee alone.

Though the emergence of a new strategy would change everything

5 Likes

Let’s model a user doing what Yearn does by hand:

  • Stake at 19.6% APY
  • Harvest every day, paying $370 on each harvest

The net APY would depend on the staked amount. A user would either pay $135,050 in gas for harvesting or pay Yearn 2/20 fees. With such strategy a user with less than $761,684 staked would be at a loss and only earn more than staking with yearn if they stake more than $2.3 million.

6 Likes

Let’s use an example: let’s say I only deposit using the service mentioned for a month. I get charged 0.2% on the way in, and 0.2% on the way out. That’s 0.4% total.

A 2% management fee over that same period is 0.166%. It only trades off to be better to use a deposit/withdrawal fee if you deposit for over 2.5 months. Its a secret cost, and not very transparent to end users that there is an extra cost associated, since its not factored into the price/yield you are seeing.

Our management fee is factored into the real price you see, which is why it seems lower than competing services. A strategy that earns a yield above 2% APY is strictly in the positive under this model. The 20% performance fee is only charged on yield, so you should be taking home 19% APY - 2% mgmt x (100% - 20% perf) = 13.6% end user yield.

You only pay the gas costs of depositing and withdrawing, all of the costs of harvesting and managing capital flows are abstracted away under the management and performance fees.

7 Likes

I appreciate the benefit for small depositors and short term users highlighted by banteg and fubuloubu, but 2% management fee + 20% performance fee seems very rich for a strategy that at the end do nothing more than auto-compounding governance rewards and don’t get any benefit from the CRV boost.
There is a fine line between fairly remunerating the devs and overcharging users and to me it feels like we crossed the line on this vault.

2 Likes

Explanations of banteg and fubuloubu seems convincing. Moreover, the community offers a service which entails the payment of fees. I don’t see an issue in paying management and performance fees. The thing that I don’t like is that in the v2 BETA version it is not possible to check the current API with respect to the tokens put in the pools. But this is something on which the devs are working on

2 Likes

Your model makes no sense as an answer to this case (1inch gov). Why would a user harvest daily?
@Jhack compares harvesting once a year manually vs. staking in the vault - a perfectly fair comparison.

It’s a problem for this specific vault where the strategy most likely won’t change, the APY stays in the 20% range and little to no user action is needed if staking manually. In this case, his calculation and conclusion is correct.

6 Likes

Hey Fubu - Michael from xToken here.

I don’t think you meant to use language this strong, but I think you’re off base with the characterization that we’re charging a “secret cost” and being “not very transparent” on our xINCH strategy… We display the fee structure front-and-center on our frontend. We also don’t advertise any ROI/return % at all (in contrast to Yearn) as APY can be fairly volatile. So, we advertise the fee structure prominently and don’t advertise any expected returns at all…not sure what you’re getting at.

That said, we appreciate the commentary in this thread and have lowered mint/burn fees to 0.1%

3 Likes

Its worth considering, you can make debt-based strategies for 1inch, and in that situation the fees would be warranted

If it’s useful to get the perspective from a total noob, here’s what the process looks like to me:
I see a vault offering ~20%APY for my 1inch, and I know I’m planning to park it for a while cause I’m not an active (or knowledgeable) trader so I zap into it.

Of course, it’s my own fault for not DYOR, but I don’t have the time/understanding to do the calculations above. I’m trusting Yearn to do that, so I trust the stated APY and deposit based on it.

I’m also actively onboarding friends/noobs into defi, and often yearn is the first place I point them because of the ease of getting started. For better or worse, I anticipate they will take a similar simplistic approach. (Interesting to note that 15-20% on stables is often much more alluring to boomer noobs that all the other more complex magic available with lending/borrowing/higher yields)

1 Like

While this illustration is relevant, it occurs to me that, as gas prices become less of a factor, the value proposition of Yearn (and others, such as Harvest, Pickle) gets minimized. Any strategy where the value is almost entirely justified in gas savings is, potentially, a short-term strategy. That’s OK. Strategies will come and go as the market changes. It is just much more meaningful to me if there is a lot of value to a strategy that doesn’t depend on gas efficiency.

I was talking about was Yearn’s own Vault fee dynamics and those of competitors that still charge a withdrawal fee, not anything to do with this specific 1INCH strategy. I was just making a general point about our fees and how they’re directly factored into share price.

Sorry if I gave the impression I was bad mouthing 1inch!

1 Like

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