Fees
maxAPY's fee structure is designed around a fundamental principle - users should only pay for actual value delivered above what they could achieve through basic, risk-free strategies.
Our fee system consists of multiple components, each carefully designed to align our interests with those of our users while ensuring sustainable protocol operations.
Core Concepts
Before diving into our fee components, it's important to understand 3 core concepts: Share Price, Hurdle Rate and High-Water Mark:
Understanding the Share Price
The share price is the vault's fundamental performance metric, reflecting the pure investment performance of the underlying strategies, independent of fee collection. This separation of performance measurement from fee mechanics is crucial for transparency and fairness.
Share Price Growth:
Represents the vault's raw investment returns
Increases with profitable yield generation
Decreases with temporary depegs of the strategy assets from the vault underlying assets.
Unaffected by deposits, withdrawals, or fee collections
User Positions:
Measured in shares, not underlying assets
Position Value = Number of Shares × Current Share Price
Initial Shares = Deposit Amount ÷ Share Price at Deposit
Share count only changes through fee collection
Understanding the Hurdle Rate
The hurdle rate is a baseline return threshold that varies by asset type:
For ETH vaults: Lido staking APR
For USDC vaults: 4-week T-Bill yield
This rate represents the "risk-free" return easily accessible to users without active management.
Since these rates fluctuate over time, the actual hurdle applied to your position is calculated as the average rate during your deposit period.
For example, if you held a position in the maxETH vault for 6 months while:
Month 1-3: Lido staking APR was 1%
Month 4-6: Lido staking APR was 3%
Your effective hurdle would be 2%.
This ensures the hurdle accurately reflects the "risk-free" return you could have achieved during your specific investment period.
Note: For simplicity, the examples in this documentation use fixed hurdle rates. In practice, they are dynamically calculated based on market conditions during your deposit period.
Understanding the High-Water Mark
The High-Water Mark (HWM) tracks peak performance of the vault through its share price, starting at 1.00 and growing as the vault generates returns. Its purpose is to prevent double-charging performance fees when recovering from a dip.
Performance fees apply to:
Growth from initial price to current price
Any growth beyond the previous HWM
Performance fees do NOT apply to:
Recovery growth back to a previous HWM
This ensures:
You pay for actual value creation
You never pay twice for the same gains
Management Fee
A fixed 2% annual fee applied to the average assets under management during your investment period. For example, if you start the year with 100 ETH and end with 200 ETH, assuming linear growth, the management fee would be calculated on the average (150 ETH).
Management fees are only charged on a monthly basis and when users withdraw their funds. For partial withdrawals, fees are calculated pro-rata.
Unlike traditional DeFi protocols that stack fees on top of underlying protocols, maxAPY's management fee includes fees from underlying protocols. If they charge equal or higher fees, we don't add extra. We also ensure your returns do not drop below a baseline, risk-free rate.
For example:
If an underlying protocol charges 1% → We add 1% to reach our 2% target
If an underlying protocol charges 2% or more → We add nothing extra
Additionally, our management fee automatically adjusts to ensure your returns never fall below the hurdle rate. This means if our strategies are only slightly outperforming the baseline, we'll reduce our fee accordingly.
We believe this is the fair thing to do - users never pay more than necessary for the service provided.
Performance Fee
A 20% fee applied only to profits (after management fees) that exceed both:
High-Water Mark (HWM): Peak performance point of the entire vault (defined above)
Hurdle Rate: The baseline return rate (defined above)
Performance fees are calculated and collected at the same time as management fees - monthly and upon withdrawal. For partial withdrawals, fees are calculated pro-rata.
Fee Collection
Fees in maxAPY are collected through two mechanisms:
1. Regular Monthly Collection
Both management and performance fees are calculated and collected at the end of each calendar month. For users who deposit mid-month, their first month's fees are pro-rated based on the number of days they were in the vault.
Monthly collections are processed automatically by the protocol.
2. Withdrawal-Based Collection
When users withdraw, they pay any accrued fees for the current month up to their withdrawal date.
For partial withdrawals, fees are calculated pro-rata based on both:
The portion of the month that has elapsed
The proportion of their position being withdrawn
These fees are deducted from the withdrawal amount before settling.
Example of Combined Fee Collection
If you withdraw on January 15th:
You would have already paid all fees through December 31st via the monthly collection
Your withdrawal would include fees for January 1-15, calculated as:
(15 days / 31 days) × monthly fee rate × withdrawn amount
Fee Settlement
Fees are collected through share deduction:
The protocol calculates fees in the underlying asset (ETH for maxETH vaults, USDC for maxUSDC vaults)
Fees are converted to equivalent shares using the current share price
These shares are deducted from user positions and transferred to the maxAPY protocol
For partial month withdrawals, a pro-rata share deduction is calculated up to the withdrawal date
Currently the maxAPY protocol keeps its collected fees inside the vault to generate additional yield. This mechanic will be later subject to governance control.
Mechanics of Share-Based Settlement:
Share deductions occur at current share price
Share price remains unchanged by fee collection
Share reductions directly reduce user position sizes
Protocol receives shares which can be redeemed for underlying assets (like users do)
Share-based collection provides key benefits:
Fair distribution of fees across all depositors
Preservation of share price as pure performance metric
Accurate handling of deposits and withdrawals at any time
Efficient protocol revenue collection without affecting vault liquidity
All fee calculations and operational details are:
Publicly verifiable on-chain
Documented in technical specifications
Displayed in real-time through the user interface
Subject to future community governance oversight
ELI5:
maxAPY takes fees by reducing the number of shares of the vault you own, not by taking your ETH or USDC directly. It converts the fee amount into shares at the current price and deducts them from your balance, without changing the share price. These fees stay in the vault to keep earning yield, and later the community will be able to decide what to do with them. This method ensures fees are fairly distributed, doesn’t mess with vault liquidity, and is fully transparent on-chain.
Examples
Let's walk through a complete set of examples showing both management and performance fees.
Note: For simplicity, the examples in this documentation use fixed hurdle rates. In practice, they are dynamically calculated based on market conditions during your deposit period.
Basic Growth Example
Let's follow a position that experiences steady growth with no drawdowns over 6 months.
Initial Position (January 1st)
Deposit Amount: 100 ETH
Initial Share Price: 1.0000
Initial Shares: 100.000 shares (100 ETH ÷ 1.0000)
Annual Hurdle Rate: 2%
Monthly Performance
January
Starting Position:
Shares: 100.000 shares
Share Price: 1.0000 → 1.0160
Position Value: 100.000 × 1.0160 = 101.600 ETH
Management Fee:
Average AUM: (100.000 + 101.600) / 2 = 100.800 ETH
Monthly Rate: 2% / 12 = 0.167%
Fee Amount: 100.800 × 0.167% = 0.168 ETH
Shares Deducted: 0.168 / 1.0160 = 0.165 shares
Shares After Mgmt Fee: 100.000 - 0.165 = 99.835 shares
Position After Mgmt Fee: 99.835 × 1.0160 = 101.432 ETH
Performance Fee:
Monthly Growth: (1.0160 - 1.0000) / 1.0000 = 1.60%
Monthly Hurdle: 2% / 12 = 0.167%
Growth above Hurdle: 1.60% - 0.167% = 1.433%
Growth Value: 101.432 × 1.433% = 1.454 ETH
Fee Amount: 1.454 × 20% = 0.291 ETH
Shares Deducted: 0.291 / 1.0160 = 0.286 shares
Final Shares: 99.835 - 0.286 = 99.549 shares
January Summary:
Final Shares: 99.549 shares
Share Price: 1.0160
Position Value: 99.549 × 1.0160 = 101.141 ETH
February
Starting Position:
Shares: 99.549 shares
Share Price: 1.0160 → 1.0322
Position Value: 99.549 × 1.0322 = 102.754 ETH
Management Fee:
Average AUM: (101.141 + 102.754) / 2 = 101.948 ETH
Fee Amount: 101.948 × 0.167% = 0.170 ETH
Shares Deducted: 0.170 / 1.0322 = 0.165 shares
Shares After Mgmt Fee: 99.549 - 0.165 = 99.384 shares
Position After Mgmt Fee: 99.384 × 1.0322 = 102.584 ETH
Performance Fee:
Monthly Growth: (1.0322 - 1.0160) / 1.0160 = 1.595%
Growth above Hurdle: 1.595% - 0.167% = 1.428%
Growth Value: 102.584 × 1.428% = 1.465 ETH
Fee Amount: 1.465 × 20% = 0.293 ETH
Shares Deducted: 0.293 / 1.0322 = 0.284 shares
Final Shares: 99.384 - 0.284 = 99.100 shares
February Summary:
Final Shares: 99.100 shares
Share Price: 1.0322
Position Value: 99.100 × 1.0322 = 102.291 ETH
[Months 3-5 follow the same calculation pattern...]
June (Partial Month - Withdrawal on June 15th)
Starting Position:
Shares: 97.850 shares
Share Price: 1.0804 → 1.0884
Position Value: 97.850 × 1.0884 = 106.501 ETH
Pro-rated Management Fee:
Average AUM: (105.674 + 106.501) / 2 = 106.088 ETH
Monthly Rate: 0.167% × (15/30) = 0.0835%
Fee Amount: 106.088 × 0.0835% = 0.089 ETH
Shares Deducted: 0.089 / 1.0884 = 0.082 shares
Shares After Mgmt Fee: 97.850 - 0.082 = 97.768 shares
Position After Mgmt Fee: 97.768 × 1.0884 = 106.412 ETH
Pro-rated Performance Fee:
Period Growth: (1.0884 - 1.0804) / 1.0804 = 0.74%
Monthly Hurdle (pro-rated): 0.167% × (15/30) = 0.0835%
Growth above Hurdle: 0.74% - 0.0835% = 0.6565%
Growth Value: 106.412 × 0.6565% = 0.699 ETH
Fee Amount: 0.699 × 20% = 0.140 ETH
Shares Deducted: 0.140 / 1.0884 = 0.129 shares
Final Shares: 97.768 - 0.129 = 97.639 shares
June Summary:
Final Shares: 97.639 shares
Share Price: 1.0884
Final Position Value: 97.639 × 1.0884 = 106.273 ETH
Overall Summary
Position Journey:
Initial Position: 100.000 shares at 1.0000 = 100.000 ETH
Final Position: 97.639 shares at 1.0884 = 106.273 ETH
Gross Return: 8.84% (share price growth: 1.0000 → 1.0884)
Total Shares Deducted due to fees:
Management Fees: 0.992 shares
Performance Fees: 1.369 shares
Total Fee Shares: 2.361 shares (from initial 100.000)
Final Results:
Initial Value: 100.000 ETH
Ending Value: 106.273 ETH
Net Return: 6.273 ETH (6.273%)
This example demonstrates:
Fee collection through share deduction
Compounding effect of share reductions
Proper handling of partial periods
Share price as pure performance metric
Clear distinction between gross and net returns
Fun Fact: we took a page from the TradFi book
Did you know that maxAPY's fee structure mirrors the classic "2 and 20" model used by most hedge funds for over 50 years?
This tried-and-tested approach consists of:
2% annual management fee
20% performance fee above a hurdle rate
High-Water Mark (HWM) protection
This structure has become an industry standard in traditional finance because it effectively aligns the interests of investors and fund managers. Some of the world's most successful investment firms, like Renaissance Technologies, Bridgewater Associates, and Citadel, have used variations of this model.
The key difference is that while traditional hedge funds typically:
Calculate fees quarterly
Have lengthy lockup periods
Require high minimum investments
Often lack transparency in calculations
maxAPY innovates on this proven model by:
Providing monthly granular fee calculations
Allowing flexible deposits and withdrawals
Having no minimum investment requirements
Ensuring full transparency through on-chain verification
Automating all calculations through smart contracts
This combination of time-tested fee principles with DeFi innovations creates a fair and transparent system that works for all participants.
Enjoy your yields!
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