I believe that varying management fees based on the asset class is important for long-term competitive dynamics (this has been discussed before on this forum, i admittedly couldn’t find a recent core thread when searching). Specifically starting with stablecoin vaults or assets like ETH that are at market or below in terms of returns may be a good place to start.
The 2 and 20 model of yearn is borne largely out of existing asset management frameworks within traditional finance. That said, increasingly in the TradFi world we’ve seen a reduction of management fees due to an index approach largely out-performing active management (which is due to passive deployment of assets, something that yearn should capitalize on if that behavior makes it’s way to DeFi).
The current userbase of protocols like Yearn is still moderately sophisticated and increasingly will have a better understanding of what “market level” returns are across various assets (for example, today the USDC vault barely outperforms pure lending on Compound (4.07% net vs. 3.74% and some may put a premium on earning COMP). Thus as we look at scaled deployment of assets like USDC, DAI, or ETH (or others), we should perhaps introduce more sophisticated fee structures in order to fend off competition while also acquire users that otherwise look at something like the ETH vault and ask why they should get 3.79% when they could yield higher elsewhere (of course there is an argument for set it and forget as well as structural diversification, less gas, etc.).
I believe that yearn will see increased competition over the coming 12-24 months and likely it would be net dominant in order to change our fee structure ahead of the market to be viewed as pioneers in the space, instead of a project that blindly adopted the TradFi structure but hasn’t changed as the DeFi industry has matured.
There are a variety of levers to pull (of which I’m not smart enough to determine the right smart contract implementation) including:
- Reducing management fees for assets that have a limited universe of strategies or have less complex yield strategies, thus less “active management” is required.
- Reducing management fees when performance fees are below a certain watermark/APR.
- Tiering performance fees across a variety of APRs (illustrative figures that likely would need to be thought through deeper: i.e. at 3% gross for USDC, performance fee is 5%, at 5% performance fee is 15%, etc.)
- This would position yearn as the leader in DeFI fee structures.
- This could drive new users who previously felt underwhelmed by the returns, of which are weighed down by the performance and management fees.
- This could allow yearn to increase revenue for strategists that materially outperform by even increasing performance fee when the vault reaches sustained outperformance (25%+ fees)
- Could create short-term revenue downturn due to lower management fees
- Might lead to a heavier risk-on approach versus a consistent yield approach by strategists…not entirely sure this is a bad thing.
Would like to discuss more but the high level question I would poll would be “should we begin to re-think or re-structure our fee structure?”