**[Proposal]** Adaptive mgmt fees based on AUM

Summary

Yearn v2 comes with a 2% mgmt fees on AUM.
Yearn gov should ramp up mgmt fees slowly as vault’s AUM grow up to the 2% max.

Background

With the introduction of Yearn V2, vaults come with a default 2% mgmt fees on assets under management. This is done at the Vault.vyper code.

Motivation

While vaults are starting up and first harvests are done, these fees are very aggressive for holders. Yearn gov should ramp up mgmt fees slowly.

For example, it’s been 10 hs since the yvHegic vault was released. Since the vault requires 888k Hegic to do the first investment, holders are affected by mgmt fees without getting any profit.

Specification

Vaults should start with 0% mgmt fees and gov should increase 0.5% every $1m AUM up to the max of 2%.

For example:
Day 1: yvHegic vault is released with 0% mgmt fees.
Day 2: yvHegic vault grows to $2m AUM, gov increases mgmt fees to 1%
Day 3: yvHegic vault grows to $10m AUM, gov increases mgmt fees to the max of 2%

Changelog

  • Added more info so it’s clear the 2% is the max possible.
  • For: Vaults will start with 0% mgmt fees and gov will raise 0.5% every $1m in AUM
  • Against: Everything stays the same

0 voters

3 Likes

This is a no brainer. Promotes deposits especially at early times. Whale friendly, and early bird friendly .

Vaults are supposed to be 100 percent lossless, how can that be possible in yvHEGIC case for early deposits. Even if a 905,760 HEGIC whale deposits first he will still get a loss.

28 Likes

Are you saying there is a cap of the mgmt fee at 2%? You say it in the example but not in your proposal.

4 Likes

Good point!
I added more clarity in the original post.

Thanks for pointing it out.

The 2% fee was approved here


Edit: for lurker reference

5 Likes

That’s a fair point, but keep in mind that any extra logic in the SC means extra gas cost. So is it negligible?

If it is, then another way to implement it might be to pause the fee clock until the first transaction (vault operation) is made.

Also as far as I’m concerned, the 2% is an annual rate. So for example this would be:

  • For a week: 2/52 = 0.038%
  • For a month: 2/12 = 0.16% in a month

Another thing to keep in mind is that early Vaults usually have a high return, so it might off-set the costs.

I’ll be happy to be corrected if I’m wrong about my assumptions.

18 Likes

The most simple implementation here would be to set it to 0% on new Vault creation, then increase at 0.5% increments at “reasonable” intervals until it hits 2%. This is only 4 calls by governance and does not require a larger code change.

7 Likes

I realize the fee is 2%, but I figured this could change that. Wasn’t sure if it was stating to leave the fee the same.

1 Like

Yes, I would definitely agree with this—let’s not change the vault code if we don’t have to, especially since we already have 3 v2 vaults deployed in production.

However, I would also wonder if we should instead adjust the limits based on the number of harvest calls? For instance, some of the v1 Curve vaults still don’t have 4 million in AUM, but are still quite profitable. If we set a threshold of harvest calls then we would ensure that we aren’t turning on fees until the vault is profitable, but would also avoid small but profitable (perhaps niche) vaults never paying fees.

3 Likes

it’s hard to track the number of harvests on-chain without having a separate variable. I would prefer we keep it simple.

yeah I definitely more meant this as a managed thing, not in an automated way—the strategist would just do this once x harvests have been hit

1 Like

Additional Notes:
Smaller Fund Management Fee. Some smaller funds ($100 million in committed capital and under) may charge a higher management fee of 2.25% or 2.5%, and more considerable funds (over $1 billion in committed capital and over) will charge lower fees, usually around 1.2% to 1.5%.
Large Fund Management Fee. Some large funds are now offering fee and carry options for LPs, such as a choice between a 2% management fee and 20% carry or a 1% management fee and 30% carry. Some LPs prefer the latter (10%/30%) option as they feel it better aligns the interests of the GP and the LPs.
Fee on Called Capital Only. A few funds have offered management fee only on called capital. This is very appealing to LPs as it means the LP pays fees only when the GP is putting the money to work. This has happened in only a few unique circumstances, such as in a follow-on fund (a fund raised to support the investments of an earlier fund that has called most or all of its capital).
Breaks. Some funds offer one-off management fee breaks for “first closing” investors that invest a certain minimum amount. This is meant to incentivize investors to invest early, at the first closing. It’s a tool to build momentum for fundraising.

2 Likes

That’s an interesting idea one day assuming it didnt take tons of logic to implement. Early vault deposits would actually trade at a premium on the secondary.

1 Like

Unfortunately, to make this happen we need to track investors and charge less. Too gas-intensive atm.

Yea, makes sense. An interesting idea for a carbon-free future!

I proposed something already similar like this back in November:

It is not gas expensive, the contracts are done for this sort of use case pretty much.

3 Likes

This has been up for 10 days and looks like a lot of support, planning on making a yip?

2 Likes

It has been submitted to voting it seems
https://snapshot.page/#/yearn/proposal/QmbhnqNe1T5bUk1Tmmash91egHPhX4zHsp87iRkY5uccsw

1 Like

While some vaults are unprofitable initially such as yvHegic vault, some other vaults are profitable right way.

I think we need a more nuanced management fee specification, specifically, for vaults that are not profitable under a certain threshold instead of a blanket change to all vaults under Yearn.

12 Likes

This proposal needs more information: what benchmark is used in calculating $1mm USD AUM? What counts as ‘AUM’ and what does not?

Instead, a slight modification to the proposal should instead offer the option of proposing such a phased in fee period (time or price based), when the strategy is initially proposed. This also has the benefit of encouraging more ‘day 2’ / ‘operational’ thinking for the strategist

4 Likes