Configuring Fees

Table of Contents

1. Understanding Your Role as Curator

2. Fee Economics 101

3. Choosing Your Curator Fee Rate

4. Fee Configuration Walkthrough

5. Strategic Fee Considerations

6. Real-World Examples

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Understanding Your Role as Curator

As a vault curator (creator), you are responsible for:

• Strategy Selection: Choosing interest rates, collateral requirements, and allowed assets

• Risk Management: Setting liquidation thresholds and safety buffers

• Access Control: Deciding who can deposit and borrow

• ADL Management: Optionally setting an ADL manager for high-utilization scenarios

• Fee Optimization: Balancing curator compensation with LP attractiveness

What You Earn

Curator fees are your compensation for:

• Initial vault setup and configuration

• Ongoing monitoring and management

• Reputation and brand value you bring

• Risk of choosing appropriate parameters

• Marketing and attracting LPs

What You DON'T Control

• Protocol fee (set by Flux governance, typically 5%)

• Vault parameters after deployment (unless using mutable strategy)

• LP funds (you cannot access vault deposits)

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Fee Economics 101

The Fee Split

Every time interest is collected from managers, it's split three ways:

Total Interest Earned from Managers
│
├─ Protocol Fee (5%)           → Flux governance
├─ Curator Fee (YOUR choice)   → YOU (vault creator)
└─ LP Share (remainder)         → Liquidity providers

Real Example

Scenario:

• Vault has 1M USDC borrowed by managers

• Annual interest rate: 10%

• Protocol fee: 5% (500 bps)

• Your curator fee: 10% (1000 bps)

Annual Economics:

Total Interest: 1M × 10% = 100,000 USDC

Distribution:
├─ Protocol:  100K × 5%  = 5,000 USDC   (fixed)
├─ Curator:   100K × 10% = 10,000 USDC  (YOU earn this)
└─ LPs:       100K × 85% = 85,000 USDC  (depositors earn this)

Effective LP APY: 85,000 / 1M = 8.5%
Your Revenue: 10,000 USDC annually

The Trade-Off

Higher curator fee = More revenue for you, but lower returns for LPs Lower curator fee = Less revenue for you, but more attractive to LPs

Your goal: Find the sweet spot that maximizes curator_fee × TVL

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Choosing Your Curator Fee Rate

Fee Benchmarks by Vault Type

Vault Type	Curator Fee	Rationale
Public Good / Community	0-5%	Altruistic, maximize LP returns
Standard Permissionless	5-10%	Competitive market rate
Premium / Branded	10-20%	Strong reputation, added value
Actively Managed	15-30%	Ongoing curation, whitelisting managers
Private / Institutional	20-50%	Bespoke service, direct relationships

Decision Framework

Ask yourself these questions:

1. What value are you providing?

High Value → Higher Fees Justified:

• Curating high-quality managers

• Active monitoring and risk management

• Strong brand/reputation in DeFi

• Proprietary strategies or connections

• Ongoing education and support

Lower Value → Lower Fees Appropriate:

• Permissionless manager access

• Minimal ongoing management

• Experimental or unproven vault

• Competitive market with alternatives

2. What's your market positioning?

Premium Positioning (15-30% curator fee):

• Established DeFi brand

• Track record of successful vaults

• Institutional-grade service

• Target: Sophisticated LPs willing to pay for quality

Market Rate Positioning (8-12% curator fee):

• Standard vault offering

• Competitive with similar vaults

• Target: General DeFi users

Volume Play (3-7% curator fee):

• Maximize TVL over margin

• Compete on price

• Target: Yield-maximizing LPs

3. What are your costs?

Factor in your operational costs:

• Gas for interest collection

• Monitoring infrastructure

• ADL execution (if applicable)

• Legal/compliance overhead

• Time and opportunity cost

Rule of thumb: Your curator fee should exceed your costs by at least 2-3x to justify the effort.

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Fee Configuration Walkthrough

Complete End-to-End Setup

Step 1: Calculate Your Target Fee

Example Calculation:

Target Annual Revenue: $50,000
Expected Vault TVL: $5M
Expected Utilization: 80%
Interest Rate: 10%

Annual Interest Generated:
= $5M × 80% × 10%
= $400,000

Required Curator Fee Rate:
= $50,000 / $400,000
= 12.5%
= 1,250 basis points

Set curator fee = 1250 bps (12.5%)

Step 2: Configure Strategy Parameters

// Import required interfaces
import {IStrategyFactory} from "flux-v1-contracts/src/factories/StrategyFactory.sol";
import {IFluxVaultFactory} from "flux-v1-contracts/src/interfaces/IFluxVaultFactory.sol";

// Define your strategy parameters
IStrategyFactory.StrategyParams memory params = IStrategyFactory.StrategyParams({
    // Risk Parameters
    minBondRatio: 0.25e18,           // 25% collateral (4x leverage)
    liquidationBuffer: 0.15e18,       // 15% buffer before liquidation
    adlBuffer: 0.1e18,                // 10% ADL buffer
    adlUtilizationThreshold: 0.95e18, // 95% utilization triggers ADL
    
    // Economic Parameters
    annualRate: 0.10e18,              // 10% APR interest rate
    
    // ⭐ CURATOR FEE - YOUR REVENUE
    curatorFeeRate: 1250,             // 12.5% of interest (1250 bps)
    
    // Liquidation
    liquidationProfitMargin: 0.02e18  // 2% liquidator profit
});

Step 3: Choose Strategy Type

Option A: Immutable Strategy (Recommended for Most)

// Define allowed asset wrappers
address[] memory allowedAssets = new address[](3);
allowedAssets[0] = wethWrapper;
allowedAssets[1] = wbtcWrapper;
allowedAssets[2] = usdcWrapper;

// Deploy immutable strategy (fee locked forever)
address strategy = strategyFactory.deployImmutableStrategy(
    allowedAssets,
    params,  // Including your curatorFeeRate
    fluxFactory
);

Benefits:

• Maximum trust from LPs

• No governance risk

• Simple and transparent

• Lower gas costs

Drawbacks:

• Cannot adjust fees later

• Cannot adapt to market changes

• Must get it right the first time

Option B: Mutable Strategy

// Deploy mutable strategy (fee adjustable with 7-day timelock)
address strategy = strategyFactory.deployMutableStrategy(
    allowedAssets,
    params,      // Initial curatorFeeRate
    msg.sender,  // You control updates
    fluxFactory
);

Benefits:

• Can adjust fees based on market

• Can respond to competition

• Flexibility for experimentation

Drawbacks:

• LPs may distrust governance

• 7-day timelock creates delay

• Higher gas costs for updates

• Requires ongoing management

Step 4: Deploy Your Vault

// Create the vault
address vault = fluxFactory.createVault(
    USDC,              // Base asset
    usdcWrapper,       // Base asset wrapper
    strategy,          // Your strategy with curator fee
    accessPolicy,      // Access control (address(0) = permissionless)
    "Premium USDC Vault",
    "pUSDC"
);

// You are now the curator!
// Curator fee earnings start when managers borrow

Step 5: Monitor and Collect Fees

// Anyone can trigger interest collection
vault.collectInterest(managerAddress);

// Your curator fees automatically accumulate in the vault
// Withdraw them via:
vault.transferCuratorFees();

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Strategic Fee Considerations

1. Fee Tiers Based on TVL

Consider launching with a promotional rate, then increasing as TVL grows:

Launch Strategy:

Phase 1 (0-1M TVL):     5% curator fee  → Attract initial LPs
Phase 2 (1M-10M TVL):   8% curator fee  → Standard rate
Phase 3 (10M+ TVL):     12% curator fee → Premium positioning

Implementation: Use mutable strategy, announce tier structure upfront

2. Competitive Differentiation

Low Fee Strategy (3-5%):

• "Index Fund" approach

• Minimal curation

• Permissionless

• High volume, low margin

Medium Fee Strategy (8-12%):

• Standard active management

• Curated manager whitelist

• Quality over quantity

• Market equilibrium

High Fee Strategy (15-30%):

• Premium brand

• Institutional service

• Bespoke risk management

• Exclusive access

3. Fee Structure Innovation

While Flux doesn't support performance fees natively, you can create innovative structures:

Tiered Curator Fee (requires mutable strategy):

Vault Utilization < 50%:   8% curator fee
Vault Utilization 50-80%:  10% curator fee
Vault Utilization > 80%:   12% curator fee

Update fees based on utilization to align incentives.

Time-Decay Curator Fee:

Year 1: 15% curator fee  → Premium for early risk
Year 2: 12% curator fee  → Stable operations
Year 3: 10% curator fee  → Long-term sustainable rate

4. Zero-Fee Strategies

When to use 0% curator fee:

• Community-driven protocol

• Marketing/loss leader vault

• Building reputation and track record

• Internal company treasury management

• Public good mission

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Real-World Examples

Example 1: Conservative Institutional Vault

Profile:

• Target: Risk-averse institutions

• Differentiator: Premium risk management

• Value-add: Curated manager whitelist

Fee Configuration:

StrategyParams({
    minBondRatio: 0.35e18,           // 35% collateral (very safe)
    liquidationBuffer: 0.2e18,        // 20% buffer
    adlBuffer: 0.15e18,
    adlUtilizationThreshold: 0.90e18,
    annualRate: 0.08e18,              // 8% APR (conservative)
    curatorFeeRate: 1500,             // 15% curator fee (premium service)
    liquidationProfitMargin: 0.01e18
})

Rationale: High curator fee justified by institutional-grade service

Example 2: DeFi Native Community Vault

Profile:

• Target: DeFi-native yield farmers

• Differentiator: Permissionless, high leverage

• Value-add: Community governance

Fee Configuration:

StrategyParams({
    minBondRatio: 0.15e18,           // 15% collateral (6.67x leverage)
    liquidationBuffer: 0.08e18,       // 8% buffer
    adlBuffer: 0.1e18,
    adlUtilizationThreshold: 0.95e18,
    annualRate: 0.12e18,              // 12% APR (competitive)
    curatorFeeRate: 600,              // 6% curator fee (community-first)
    liquidationProfitMargin: 0.03e18
})

Rationale: Low curator fee to maximize LP returns and attract TVL

Example 3: Experimental High-Yield Vault

Profile:

• Target: Risk-seeking DeFi users

• Differentiator: Novel strategies, high APY

• Value-add: First-mover advantage

Fee Configuration:

StrategyParams({
    minBondRatio: 0.10e18,           // 10% collateral (10x leverage!)
    liquidationBuffer: 0.05e18,       // 5% buffer (aggressive)
    adlBuffer: 0.08e18,
    adlUtilizationThreshold: 0.98e18,
    annualRate: 0.20e18,              // 20% APR (high yield)
    curatorFeeRate: 2000,             // 20% curator fee (high risk, high reward)
    liquidationProfitMargin: 0.05e18
})

Rationale: High curator fee compensates for experimental risk

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Related Documentation

• Creating a Vault

• Strategy Selection

• Vault Management