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).
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: *
- Interest for being lent out at Compound*
- COMP liquidated to USDC*
- 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.
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.
This YIP would modify the harvest() function to charge on profit, not excess gas incurred.
- Yes, charge between 1-3% of profits (after gas fees)
- Yes, charge between 3-5% of profits (after gas fees)
- No, leave as is