Yield & Fees
Understanding how yield is generated and fees are applied in Morpho Vaults is crucial for building accurate earn products and setting proper user expectations.
Yield Generation
While Morpho Vaults V1.x generate yield through a capital allocation to Morpho Market V1, Morpho Vaults V2 generate yield through allocating capital to Morpho Vault v1 and potentially Morpho Market V1.
Where does the yield comes from?
Borrower Interest
Borrowers in underlying Morpho Markets pay interest
Market Distribution
Interest flows to lenders in each market
Vault Collection
Vault collects interest as a lender across multiple markets
Share Price Increase
Vault's total assets increase, raising share price
Depositor Interest
Depositors earn the interest paid by borrowers as the share of their position increased in token's value amount.
Fee Mechanism
Morpho Vaults V2 implement a performance fee and a management fee that aligns curator incentives with vault performance. On the other side Morpho Vaults V1.x implement a single performance fee.
Performance Fee
The fee is taken as a cut on the native yield earned by allocating capital, and is capped at 50%.
Management Fee
For Morpho Vaults V2 only, this management fee is taken on the total asset deposited on the vault, and is capped at 5%.
Integration Best Practices
Real-Time Updates
- Update share prices regularly
- Show pending yield that hasn't been reflected in share price yet by accruing interests on the underlying markets
- Display historical performance charts
User Education
- Clearly explain that performance fees only apply to yield, not principal, while management fee apply on the principal.
Performance Monitoring
- Track vault performance against benchmarks
- Alert users to significant strategy changes
- Provide detailed yield attribution