Understanding Performance and Withdrawal Fees in Yield Optimizers

Detailed Instructions

Begin by obtaining the gross APY figure from the yield optimizer's dashboard or smart contract data. This is the headline yield before any deductions. Simultaneously, identify the complete fee structure. This typically includes a performance fee (e.g., 10-20% of yield earned), a withdrawal fee (often a fixed percentage of principal withdrawn), and potentially a management fee (an annual percentage of total assets). For protocols like Yearn V3, check the vault's performanceFee and managementFee variables. For Harvest Finance, review the controller contract for fee settings.

• Sub-step 1: Query the vault's getPricePerFullShare() over time to calculate raw yield.
• Sub-step 2: Locate the fee configuration in the protocol's documentation or via on-chain calls to the fee recipient address.
• Sub-step 3: Note if fees are compounded or taken upon withdrawal, as this affects the calculation.

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// Example: Fetching a Yearn V3 vault's fee config (conceptual)
const performanceFee = await vault.performanceFee(); // Returns basis points, e.g., 1000 for 10%
const managementFee = await vault.managementFee(); // Basis points

Tip: Gross APY is often volatile. Use a 7-day or 30-day average for a more stable calculation base.

Detailed Instructions

The performance fee is the primary reducer of APY. It is a percentage of the profits generated, not the principal. First, convert the gross APY from a percentage to a decimal multiplier (e.g., 15% APY = 1.15). The yield earned over a period is this multiplier minus 1. The protocol's take is a percentage of this earned amount. The formula is: Net Yield Multiplier = 1 + (Gross Yield Earned * (1 - Performance Fee %)). For example, with a 15% gross APY and a 20% performance fee: Gross Yield Earned = 0.15. Fee Deduction = 0.15 * 0.20 = 0.03. Net Yield Retained = 0.15 - 0.03 = 0.12. Therefore, the APY after performance fee is 12%.

• Sub-step 1: Isolate the yield earned component: yieldEarned = grossApyDecimal - 1.
• Sub-step 2: Calculate the fee amount: feeAmount = yieldEarned * (performanceFeeBPS / 10000).
• Sub-step 3: Derive the net yield: netYield = yieldEarned - feeAmount. Add 1 to get the net multiplier.

Tip: If fees are harvested and compounded less frequently than yield, the effective drag is higher. Model this by applying the fee at the harvest interval.

Detailed Instructions

Withdrawal fees are applied as a percentage of the principal amount being withdrawn (e.g., 0.5%). This directly reduces your final capital exit amount. To annualize its impact, estimate your withdrawal frequency. For a single withdrawal after one year, the effective APY reduction is approximately the withdrawal fee percentage. Management fees are an annual charge on total assets, often taken continuously from the vault's yield before it is compounded. To incorporate a management fee of 0.5% APY, simply subtract it from the performance-fee-adjusted APY. The combined adjustment is: Adjusted APY = (APY after perf fee) - (Management Fee %) - (Withdrawal Fee % / Holding Period in years).

• Sub-step 1: Convert the withdrawal fee to an annualized cost based on your expected investment horizon.
• Sub-step 2: Subtract the flat management fee percentage from your intermediate APY figure.
• Sub-step 3: For precise modeling, use a spreadsheet to simulate the compounding effect of a continuous management fee drain.

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// Example logic mirroring a vault's fee deduction on withdrawal
function calculateWithdrawalFee(uint256 _amount) public view returns (uint256) {
    return (_amount * WITHDRAWAL_FEE_BPS) / 10000;
}

Tip: For long-term holders, the management fee has a larger compounding effect than a one-time withdrawal fee.

Detailed Instructions

On-chain interactions incur gas costs, which are a direct deduction from your net profit. Estimate the gas required for key actions: deposit, periodic compounding (if manual), and withdrawal. Multiply the gas units by the expected gas price (in gwei) and the ETH/USD price to get a dollar cost. For example, a $50 deposit gas fee on a $10,000 investment is an immediate 0.5% loss. To annualize this, spread the total expected gas cost over your investment period and principal. The formula is: Gas Cost Drag % = (Total Estimated Gas Cost in USD / Principal USD) / (Holding Period in years). Add this to your other fee deductions. For auto-compounding vaults, the protocol pays gas, but this is factored into their fee structure.

• Sub-step 1: Use a gas estimator for the relevant network (Ethereum, Arbitrum, etc.) for deposit and withdrawal function calls.
• Sub-step 2: Project the number of transactions you'll make (e.g., one deposit, one withdrawal, quarterly claims).
• Sub-step 3: Convert all gas costs to a percentage of your principal and annualize.

Tip: On L2s or sidechains, gas costs are lower but not zero. Always include them for accuracy.

Detailed Instructions

Combine all previous steps into a single calculation. Start with the gross APY (G). Apply the performance fee (Pf) to get the yield after performance fee: Y_pf = 1 + ((G - 1) * (1 - Pf)). Subtract the annual management fee (Mf) expressed as a decimal: Y_mf = Y_pf - Mf. Subtract the annualized impact of the withdrawal fee (Wf_annualized) and the annualized gas cost drag (G_annualized). The final Real Net APY is: Net APY = (Y_mf - Wf_annualized - G_annualized) * 100. This figure represents the expected percentage increase in your capital after one year, accounting for all protocol and network costs. Document your assumptions for each variable.

• Sub-step 1: Assemble all calculated and estimated values into a central formula.
• Sub-step 2: Perform the calculation using a spreadsheet or script for precision and scenario testing.
• Sub-step 3: Validate by comparing your result against community tools or dashboards that attempt similar calculations, understanding their assumptions may differ.

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// Example calculation function
function calculateNetAPY(grossAPY, perfFee, mgmtFee, withdrawFeeAnnual, gasDragAnnual) {
    const yieldEarned = grossAPY - 1;
    const yieldAfterPerfFee = 1 + (yieldEarned * (1 - perfFee));
    const yieldAfterMgmtFee = yieldAfterPerfFee - mgmtFee;
    const netMultiplier = yieldAfterMgmtFee - withdrawFeeAnnual - gasDragAnnual;
    return netMultiplier * 100; // Return as percentage
}

Tip: Real Net APY is dynamic. Recalculate periodically as gross yields, gas prices, and fee structures change.