[SIPS-039] Upcoming Proposal to Change the Real Yield USD Fee Structure

The purpose of this post is to discuss the upcoming proposal to change the fee structure of Real Yield USD. The proposal will go live Wed, April 19, 2023.

Currently there is a 0.5% platform fee and 0% performance fee. The new proposed fee structure will be a 0% platform fee and 20% performance fee.

When Real Yield USD launched, the Cellars V2 smart contract architecture lacked a mechanism for collecting performance fees. This was due to space constraints in the smart contract. Instead, logic for taking platform fees (a percentage of TVL, annualized) was contained natively in the Cellar smart contract.

Since then, a new utility contract and corresponding adaptor have been developed called Fees and Reserves. This contract adds the important functionality to collect platform and performance fees, in addition to supporting the ability maintain Cellar reserves that can be used to smooth APY over time or offset losses.

This new Fees and Reserves contract is already active in the recently launched Real Yield ETH Cellar while native computation of platform fees has been removed.

We are proposing to modify the fee structure of Real Yield USD to deprecate platform fees in favor of performance fees for the following reasons:

  1. Performance fees are more suitable to integrations with other protocols, because they ensure fees don’t reduce share value. For example, migrating to performance fees is a prerequisite for integration with Origin USD. We are actively engaging with the Origin community and are planing on making a proposal to support this integration. This integration (and others) have the potential to significantly increase Real Yield USD TVL.

  2. Revenue to stakers and strategists scaling with performance is core to the economic model of Sommelier. Performance fees are an essential component to reaching sustainable fee-driven SOMM staking yields.