Vault Fee Structure

An annual percentage fee charged on the total assets under management (AUM) within the vault. This fee is typically accrued and deducted on a pro-rata basis, often daily or weekly, to compensate the vault manager for ongoing strategy maintenance and operational costs.

• Purpose: Covers ongoing research, smart contract upkeep, and general operations.
• Typical Range: Often between 0.5% and 2% annually.
• Mechanism: Deducted from the vault's assets, not from user withdrawals, which subtly reduces the share price over time.

A fee taken as a percentage of the profits generated by the vault's strategy. This is the primary incentive mechanism for vault managers to outperform the market.

• High-Water Mark: A common feature where fees are only charged on new profits that exceed the vault's previous highest net asset value per share.
• Typical Range: Usually between 10% and 20% of profits.
• Example: If a vault with a 20% performance fee generates a 15% return, the manager takes 3% (20% of 15%), and the user receives a 12% net return.

A one-time fee charged when a user exits the vault by redeeming their shares. This fee is less common in DeFi vaults but can be used to discourage rapid, short-term withdrawals that may disrupt the underlying strategy.

• Purpose: Can help stabilize the vault's capital base and cover transaction costs of rebalancing.
• Mechanism: Usually a fixed percentage (e.g., 0.1% - 0.5%) of the withdrawal amount.
• Distinction: Different from a protocol withdrawal fee, which some underlying protocols (like certain DEX LPs) may charge separately.

A fee charged when a user deposits assets into the vault. This is relatively rare in decentralized vaults as it creates immediate friction for users.

• Use Case: May be implemented to cover the gas costs of minting shares or initial strategy allocation, or in vaults with very high demand to manage inflows.
• Typical Structure: Usually a small, flat percentage (e.g., 0.1% - 0.5%).
• Contrast: Most vaults have no deposit fee, as their revenue model is based on management and performance fees.

Specifies who receives the collected fees and how they are distributed. This is a key transparency and governance element.

• Treasury: Fees may be sent to a DAO treasury to fund future development.
• Token Buyback & Burn: A portion of fees might be used to buy and burn the protocol's native token, creating deflationary pressure.
• Staking Rewards: Fees can be distributed to users who stake the protocol's governance token.
• Manager: Directly to the strategy developer or team.

The precise on-chain mechanism for how and when fees are calculated, accrued, and deducted. This is encoded in the vault's smart contract logic.

• Accrual: Management fees often accrue continuously and are accounted for in the vault's share price (NAV/share).
• Harvesting: Performance fees are typically triggered and collected during a harvest event, when the strategy realizes profits.
• Transparency: Users should be able to audit the fee logic directly in the contract or via clear documentation. The APY displayed should be net of all fees.

An annualized percentage fee charged on the total assets under management (AUM) in the vault. This fee accrues continuously to compensate the protocol or vault manager for ongoing strategy development, maintenance, and operational costs. It is typically withdrawn from the vault's assets periodically (e.g., weekly or monthly).

• Purpose: Covers operational overhead.
• Typical Range: 0.5% - 2% APY.
• Example: A vault with a 2% management fee on $10M AUM generates ~$200k annually for the protocol.

A fee taken as a percentage of the profits generated by the vault's strategy. This is the primary incentive mechanism for vault operators to maximize returns.

• Mechanism: Charged only on gains, typically after a high-water mark is surpassed.
• Typical Range: 10% - 20% of profits.
• Example: If a vault earns a 15% return, a 20% performance fee on the profit would take 3% of the total portfolio value, leaving the user with a 12% net return.

A one-time fee charged when a user withdraws their assets from the vault. This fee can serve multiple purposes.

• Purpose: Discourages rapid in-and-out trading (protecting other LPs), covers gas costs for exiting positions, or acts as an additional revenue stream.
• Typical Range: 0.1% - 0.5%.
• Note: Not all vaults have this fee; its presence and structure are a key part of the vault's economic design.

A less common fee charged upon depositing assets into a vault. It is typically used to cover immediate operational costs or as a barrier to entry for very short-term capital.

• Purpose: Can offset gas costs for onboarding or initial strategy execution.
• Typical Range: 0% - 0.5%.
• Context: More prevalent in vaults with complex, gas-intensive entry strategies or in certain yield aggregators.

A portion of the fees generated by the underlying protocols where the vault's capital is deployed. This is distinct from the vault's own management/performance fees.

• Mechanism: The vault may earn liquidity provider (LP) fees from an AMM, borrower interest from a lending market, or other native protocol rewards. A share of this revenue may be retained by the vault operator before being passed to users.
• Example: A vault providing liquidity to Uniswap v3 earns swap fees; the protocol might keep 10% of those fees as part of its revenue model.

Understanding how and when fees are applied is crucial for accurate APY projections.

• Accrual: Management fees often accrue continuously and are harvested periodically.
• High-Water Mark: Performance fees usually employ this mechanism, ensuring fees are only paid on new all-time highs, preventing double-charging on recovered losses.
• Tokenomics: Fees are often distributed to governance token stakers, used to buy back and burn tokens, or sent to a protocol treasury to fund future development.

A performance fee is charged on generated profits, aligning the vault manager's incentives with depositors. This is the most common model for yield-generating strategies.

• Example: A vault earns 10% APY. With a 20% performance fee, the user receives 8% net yield, and the protocol takes 2%.
• Standard Rate: Typically ranges from 10% to 20% of profits.
• Collection: Often charged upon withdrawal or harvest, calculated as (current value - principal) * fee rate.

An annual management fee is charged as a percentage of the total Assets Under Management (AUM), regardless of performance. This covers ongoing operational costs.

• Example: A vault with $100M TVL and a 2% annual management fee generates ~$2M in annual revenue for the protocol.
• Common Use: Frequent in vaults offering passive, lower-risk strategies like stablecoin lending.
• Calculation: Typically accrued continuously and deducted from the vault's assets, subtly reducing the share price over time.

A withdrawal fee is a one-time charge levied when users exit a vault, often used to discourage rapid capital flight or to cover transaction costs for unwinding complex positions.

• Example: A vault might charge a 0.1% fee on the withdrawn amount.
• Purpose: Can protect remaining users from liquidity issues during mass exits.
• Variation: Sometimes implemented as a timelock where early withdrawals incur a penalty, while scheduled exits do not.

A deposit fee is charged when capital enters the vault, deducted from the initial investment. This is less common but can be used to bootstrap protocol revenue or offset minting costs.

• Example: A 0.5% deposit fee on a $10,000 investment means the user's initial vault share balance is based on $9,950.
• Rationale: Often seen in vaults with high operational overhead for position entry or in early-stage protocols.
• Impact: Directly reduces the user's cost basis and potential compounding returns.

Major protocols use layered fee structures:

• Yearn Vaults: Combine a 2% management fee (of AUM) and a 20% performance fee (of gains). Fees are used to buy back and burn the native YFI token.
• Convex Finance: Charges a 10% performance fee on CRV rewards earned by its vaults (cvxCRV). A portion of this fee is distributed to CVX stakers.
• Mechanism: These fees are often automated via smart contracts and distributed to token holders or treasury.

Fees are directed to different entities to ensure protocol sustainability:

• Protocol Treasury: Fees fund development, audits, and grants.
• Token Holders: Fees are used for buybacks, burns, or direct dividends (e.g., staking rewards).
• Insurance Funds: A portion may be allocated to a protocol-owned cover pool to backstop potential smart contract failures.
• Strategic Reserves: Fees can build a war chest for liquidity incentives or strategic token acquisitions.