[Proposal] Change 5% Harvesting Fee to Performance Fee on Profits

[srs-parafi]

Summary:

Proposing to change the vault fee model from currently 5% gas subsidization fee (i.e., harvesting) to a 5% performance fee on profits. Performance fees are standard in the asset management industry, and there seems to be a great deal of confusion among users on how the current fee model works. Based on a number of conversations and scouring threads, it seems that users don’t understand how the gas subsidization fee works and, rather, think they are paying 5% on profits. In short, value is being left on the table and this YIP would clarify this fee and, more importantly, incentivize strategy creators to create the most profitable strategies (no profit = no fees).

Abstract:

YIP would change the 5% harvesting fee to 5% of profits. Take the example from the explainer section (https://docs.yearn.finance/faq#can-you-explain-the-5-fee-to-subsidize-gas):

*When harvest() is called the profit comes from three places: *

• 1. Interest for being lent out at Compound*
• 2. COMP liquidated to USDC*
• 3. DF tokens from DForce that get harvested and sold for USDC*
• Only the 3rd event, harvesting and selling the DF tokens, incurs the 5% fee. The 5% fee is charged on that event because the system uses additional gas that it would not have otherwise used.*

Charging 5% on performance would charge 5% on any profits made in (1) (2) and (3) above.

Motivation:

The yEarn vaults provide a lot of value (yield optimization) to users and the current gas subsidization fee feels suboptimal. It doesn’t properly compensate yEarn developers (Andre and team) who have created arguably the best place in DeFi to park and earn yield on your crypto assets. I believe many users already think that the 5% harvesting fee is being charged on profits (not realizing that they are actually are only paying on excess gas). As a result, this change likely will not be controversial from a user perspective.

While concerns of “rent seeking” are valid, collecting 5% only on performance/profits feels fair. More importantly, it aligns the incentives of strategy developers to create the most profitable strategies. The net result is that implementing this YIP would lead to higher fee potential for the yEarn protocol, further incentivize strategy creators, and solidify the long-term development and growth of the system.

Specification:

This YIP would modify the harvest() function to charge on profit, not excess gas incurred.

For:

Against:

Poll:

• • Yes, charge between 1-3% of profits (after gas fees)
• • Yes, charge between 3-5% of profits (after gas fees)
• • No, leave as is

[devops199fan]

agree on this 2/20 is standard for hedge funds, and this is cheap in comparison.

For comparables in the space, Rari Capital charges a 20% performance fee:

Source

[ETH_Maximalist]

You have my vote.

I’m using ETH / LINK vaults but I’m more than happy to pay the 5% of profits to the protocol. As stated before, 2/20 is a standard structure. We’ll be 0/5?

[DeFier]

I vote For. “…it aligns the incentives of strategy developers to create the most profitable strategies.”

[chrisb]

good idea, follows a standard performance fee structure for hedge funds, but much cheaper. the 5% gas optimisation fee is confusing and should be made cleaner and simpler. should also accrue more value to YFI holders…

[ooinaru]

You have my vote! People currently think the 5% is the performance fee anyway.

[jimsox]

So just to clarify, does this proposal remove the 0.5% fee on withdrawals too? or it stays as it is.
So users would pay 5% fee on profits + 0.5% on their initial deposit amount?

[Dark]

I am up for charging a fee but would vote for maybe 2%. I would rather see us as the vanguard of crypto.

[TK-DeFi]

There’s not much downside here if the guy is anonymous. Would encourage risky strategies.

[KlasK]

I think many people, like me, were not aware of this. I am for it.

[WrongNebula]

I am for! It will be added value for YFI holders.
Too many people are trying to put YFI value to zero, it is not a valueless token anymore. Time to step up above the sea of clones as well… We’re approaching $1.5B total value locked, it’s time that we show all those clones and veggies tokens who’s boss haha

Edit: And we need to get the number of YFI token on Binance to zero, YFI shouldn’t be traded on CEX and definitely not on leveraged shit!

Apparently there’s only 2000 YFI left on it:

ySwaptoshi.finance (swaptoshi)

[iTo]

I’m all for simplification and increased profits to governance. I think most already believe they are paying a 5% performance fee on profits. I did.

[itsfine]

I am sad to see that more and more greed and coming to this community.
the protocol already makes a lot of money and instead of redistributing wealth to people that stake their capital at risk I see many that in the spirit of pure greed that want more profit for themselves.
this is sad. The promise of crypto in general is decentralization and redistribution of wealth, and not more of the same of what we already see that doesn’t work in the world

[LapisLime]

@ooinaru

People currently think the 5% is the performance fee anyway.

@KlasK

I think many people, like me, were not aware of this.

@iTo

I think most already believe they are paying a 5% performance fee on profits. I did.

It seems like an issue may be that the current fees are not adequately explained. Certainly if those posting on this forum did not know, how could we expect other users to know. One solution could be to improve communication on this issue. Another is to follow the suggestion from @Dark and use a smaller fee on profits. Would someone figure out what percent of profits we would need to approcimately equal today’s fees?

[iTo]

100% agree with getting YFI off CEC.
This however, I’d imagine will have to happen organically through DEX shortages.

[boatonagoat]

I agree. I think we can better clarify how the fees are taken without introducing new ones. I want yearn to be a great product, and part of that means giving as much value to users of the product.

[spacemonkey]

I can see the rationale behind wanting to change the fee, but I fail to see how it is good to use the misinterpretation of current customers to change a “policy” that they didn’t accept at first.

Also there is the concern that there are people currenlty in the vault that wouldn’t appreciate the change.

And as a final concern I don’t see how moving from 5% of A to 5% of B could be good without some numbers to reflect this change in users APY.

I hope these points are taken in a collaborative spirit. Sometimes it’s hard to convey tone when disagreeing.

[KlasK]

It’s not about greed. YFI stakers also take risk, are important for the long-term health of the platform and should be compensated. Currently, 20% YFI are staked, 80% are not. It seems that there are two sides to this topic though and I have no idea which side is bigger. I see the merits of both sides.

[srs-parafi]

You’re missing the point. Charging 5% on profits will increase fees to the protocol - that fee will be split among stakers (i.e. YFI community) and strategy creators.

The second-order effects of this YIP is that it raises fees for the protocol and distributes wealth away from vault users to the YFI community and creators.

[srs-parafi]

I would propose as follows:

5% on profits when harvested (can be called on a continuous basis, not on withdrawal)
0.5% on withdrawal (exit fee)

We could also think about adding an ongoing management fee - but baby steps…