Management Fees for Vaults

Summary:

There are two parts to this proposal:

Passive yVault Strategies
We should think big for yVaults when considering what their future entails. Whilst current short term strategies can generate high yield, they can also disrupt other projects and not scale well. yVaults should strive to be DeFi’s solution the Vanguard/Black Rock. The goal could be to capture assets under management and actively manage through more scalable long term passive strategies that may or may not also leverage opportunities to generate yield on assets.

Management Fees for Strategies
In my experience, Investors are very ok paying management fees for someone else to run a strategy on their behalf, but they always argue over performance fees (they want all their gains!). If we assume the goal of the above being to maximize assets in the yVaults, we should consider charging a management fee (industry standard of 2%) that is split between strategy designers and YFI holders. This will be very stomachable for investors, potentially hugely profitable for YFI holders and incentivize strategy designers to create long term value capture for yearn. This fee would be charged along side the 0.5% vault exit fee.

Abstract:

YIP would introduce a 2% annualized fee on assets under management taken from vaults daily (i.e. 2%/365 daily rate).

Motivation:

Current Yearn Vaults are mostly designed around short term yield optimization that: (1) does not capture long term value for yearn since turnover is high, (2) is likely unsustainable since yields will reduce as more entrants enter defi, (3) does not scale fantastically as experience with some existing vaults, (4) can cause harm to other projects as the strategies are largely designed to farm and dump tokens rather than farm to become community members (not implying this is not what most farmers do…)

Yearn should dream big and try to capture significant long term value on the platform through creating long term yield strategies where investors can ‘set and forget’, trusting that the strategy will follow a rules-based investment process. Whilst probably not appealing to DeFi Chads, it is how the big investor $$ traditionally allocate capital. Think Vanguard, Blackrock, Fidelity, etc. This will help create Yearn’s already growing moat and hopefully attract different types of investors to the platform.

For example: Imagine just a simple BTC/ETH vault that maintained passive long exposure to BTC and ETH, but also returned 10-20% (or more!) above spot just from using a ETH yVault and sBTC or renBTC Curve strategy. For a simple, non-DeFi Chad that is a great return on a long term investment

Specification:

This YIP would modify the harvest() function to charge on assets under management daily

For:

Introduce a 2% Management

Against:

Leave fees as is for now

Poll:

  • For
  • Against

0 voters

Why not just use those crooks on Wall Street who collect money when the win or lose. The more i hear about Crypto and being like Wall Street the more I fear its demise. These guys are cut throat and will rip you off, take you over and leave you begving for a job.

8 Likes

I don’t believe this is in the original spirit of yearn.finance. My understanding is this platform should be considered a place with near zero risk and potential to safely maximize profit for the user, not maximize profit for the YFI holder. Charging users simply to use yVaults goes against that. Many banks in the USA will charge a monthly payment to open an account unless you maintain a certain balance, have monthly direct deposit, or a certain number of monthly transactions. Banks effectively charge their users for the privilege of allowing the bank to control the users wealth. Lets not move in that direction.

11 Likes

Fair points by both, I guess the spirit of this suggestion is to help Yearn capture long term value on the platform. Current incentive structures of vault creators is to develop high yielding strategies (gives them the best returns) rather than to develop long term sustainable strategies. And for passive investors that just want long crypto exposure there isn’t really an option.

  • For Strategy creators - they are incentivized to capture long term, rather than short term value.
  • For Vault participants - they can opt in if they desire (fees are transparent and not hidden), but if they do, they can benefit from the power of pooled allocation (lower gas fees, lower transaction costs, lower turnover costs, etc) and automated allocation strategies (allocation and additional yield) that can either be time consuming or difficult for them to execute on themselves.

2% is an arbitrary figure, could be 1%, could be less, but I think you’ll find there is a sweet spot where everyone is happy

2 Likes

I agree, it could be much less than that.

For, I mean how could you not?

Could be a fixed percentage like 2% with rebates given for larger amounts deposited across the Yearn ecosystem from the same account.

If an account has more than $X deposited, there is a Y% rebate:

Greater Than $X => % Rebate

$1,000 => 0.25% rebate (Net annual mgmt fee of 1.75%, debited daily)
$10,000 => 0.75% rebate (Net annual mgmt fee of 1.25%, debited daily)
$100,000 => 1% rebate (Net annual mgmt fee of 1%, debited daily)
$1,000,000 => 1.5% rebate (Net annual mgmt fee of 0.5%, debited daily)

1 Like

I like the idea to increase profit for YFI holders. As ~90% of my yearn.finance use is in staked YFI, it would benefit me. But I don’t think it’s the right thing to do. I don’t think it’s what YFI was intended for.

Andre Cronje was recently on the Unchained podcast ( https://www.youtube.com/watch?v=SZvDoEJ6wdU ). What I gathered from that interview and previous articles is that yearn.finance was designed to have near zero risk. If you automatically charge a percentage to use the platform, there is guaranteed loss with a potential of gain.

Why should YFI holders be entitled to a portion of the yearn.finance users assets?

You mention funding the dev team. That’s understandable, but isn’t that funding is already provided for? You’ve not made a case that more funding is required. Also, please listen to Andre’s interview as he discusses thoughts along these lines.

Thank you for the discussion. I’m only a novice with yearn.finance and YFI. Please help me understand other points of view.

5 Likes

Even as a YFI holder, I think this is the wrong way to increase profit.

This is akin to rent-seeking behavior. There is already the withdrawal fee. I don’t see any rationale for why we need to be charging this additional fee.

Value to YFI holders should come from growing the platform, i.e. increasing TVL, introducing new products, new vaults. Not from just upping the fee.

13 Likes

Instead we should charge a percentage of additional gains attributable to the vault. There would be no fees when the vault is idle or for yield generated from the underlying token. Fees of this type would also never cause a balance to decrease – one of the features of the vaults.

2 Likes

You lost me at Vanguard/Blackrock

To be fair, if this was going to be DeFis Vanguard the rate should be 10 basis points (VG avg) vs. the 200 basis points most management companies charge. I’d be OK with adding that type of nominal fee if it went directly towards something great (i.e., github grants) vs. token holders

Isn’t this just hurting the little guy? I would rather see incentives for smaller holders due to high gas prices than giving rebates for people with lots of money.

Afaik vanguard doesn’t charge anywhere near 2%. I generally dislike fees, and I think most vanguard etf fees are like 0.03%. I would be ok with this kind of fee anything else is too high imo.

4 Likes

I don’t understand why everyone seems to be so against the idea of YFI holders making any money from providing this service beyond 0.5% withdrawal fees (which are now in the process of being circumvented by Curve and other projects). Seems on every thread, whether it’s performance fees or management fees, people want to give the service away for nothing or next to nothing. Makes no sense. I understand being against rent seeking, but this service is going to make a lot of people money effectively risk free and we want to generate demand for YFI, so we should be providing incentive for people to want to hold YFI. This thing needs a bit of cash flow and it’s not unfair for investors/owners of the protocol to benefit if things go well.

5 Likes

I disagree with this. The ethos of yVaults is that you never lose your principal. It would be really hard to formulate unsustainable strategies if you make your decisions around that ethos.

Bank the unbanked, defi is for everyone, not just those who can afford fees.

1 Like

OK but we’re talking about 5% performance fees, which are only on gains, or basis points for overall management on a service providing safe double digit returns on dollar deposits. It’s a service worth paying for and it’s not gouging anyone. The value being provided is insane.

1 Like

Unless the security of the protocol is at risk, additional fees are unnecessary and therefore is price gouging. Plus, we already have all the best minds of DeFi here without those fees, I fail to see what benefit it will bring by adding fees.

1 Like

Well, it would add value to the YFI token. It would make it worth buying and holding long term if it was a cash flow machine. Most of the bullish investment thesis here is that one can vote on usage fees that are distributed to holders. Basically the same as the UNI bull case right now with their fees.

1 Like

Add value to the YFI token at the cost of current clients and shrinking future client base.

IMO it’s a better approach to make up our earnings by growing our client base instead of introducing more fees.

The idea of yearn started when Andre wanted to save gas-costs by pooling individual funds into one large pool. Since gas-costs are constant no matter how big a transaction is, the bigger the pool, the more savings there are.

To go against growing the pool is to go against the reason why yearn started in the first place.

2 Likes

Why would the pool not still grow? People would be still be making a lot of money safely and there are moats here where this can’t easily be forked (Maker oracles, pool scaling, community, etc.) for the sake of eliminating a small, well-earned fee. I think most users see it as reasonable to have to give a small cut to the platform making it all possible. I do agree that 2% on all assets is too much; if it is on all assets it should be much lower… like 10-50bp