Fees And Reserves

Fee generation is a core element of the Sommelier Cellars incentive model: when Cellars earn returns, fees can be disbursed to both the strategist and the network. Incentivizing strategists encourages the continued development of new and effective strategies for users, and incentivizing the network contributes to the security of the Sommelier Chain.

Sommelier Cellars are deployed with a configured FeeData struct, which defines four properties:

  • strategistPlatformCut - the percentage of fees that will go to the strategist, with 16 units of precision (1e18 == 100%).

  • platformFee - the percentage of total assets that will be assessed as fees, with 16 units of precision. This value is currently deprecated, and has been replaced by FeesAndReserves (see "FeesAndReserves Functionality" below).

  • lastAccrual - the time fees were last accrued, for accounting purposes. This value is currently deprecated, and has been replaced by FeesAndReserves.

  • strategistPayoutAddress - the address that will receive the strategist portion of earned fees.

Currently, strategistPlatformCut and strategistPayoutAddress for a given Cellar can be updated by Sommelier Governance.

While the Cellar itself stores fee configuration in FeeData, and exposes getters and setters for that configuration, the Cellar itself contains no logic for the assessment or disbursal of fees. In order for the strategist and platform to account for, accrue, and disburse fees, a Cellar must use a FeesAndReserves contract with a FeesAndReservesAdaptor (more below).

FeesAndReserves Functionality

The FeesAndReserves contract contains logic which reads Cellar fee configuration and is subsequently able to accrue and set aside fees for withdrawal. The FeesAndReserves contract contains specific accounting configuration for each Cellar in the MetaData struct.

Using FeesAndReserves, Cellars can assess two types of fees:

  • Management Fees are flat-rate, annualized fees on total Cellar TVL. The MetaData struct contains a managementFee field, expressed in basis points.

  • Performance Fees are earned any time a Cellar generates profit past its high-watermark (specified by exactHighWatermark in MetaData). The MetaData struct contains a performanceFee field, also expressed in basis points.

Management and performance fees can be changed by the strategist using the updatePerformanceFee and updateManagementFee functions. When fees are changed, they only take effect after the next fee accrual.

When fees accrue and are prepared for distribution to the platform, they cannot come from currently-allocated positions. Instead, any future fees must be "reserved" by the strategist in the FeesAndReserves contract.

Strategists can reserve assets for fee disbursement by calling the function addAssetsToReserves (through the FeesAndReservesAdaptor, further described below). When assets are added to reserves, they are held by the FeesAndReserves contract and continue to contribute to Cellar TVL, but can not be deployed in positions. Strategists can also withdraw assets from reserves using withdrawAssetsFromReserves, meaning that those assets can no longer be used for the disbursal of fees.

It is optimal for the strategist to keep reserves funded equal to the level of eligible fees for disbursal. If too few assets are added to reserves, only the reserved amount can be withdrawn even if a larger amount of fees can be accounted for. The balance of fees can be later withdrawn after topping up reserves. Conversely, if too many assets are added to reserves, it will be a drag on the cellar's performance, reducing the fee-earning potential of the Cellar.

Note that reserves must be funded in a single, pre-specified asset only - this is the asset specified by reserveAsset in MetaData.

Fee Accrual Mechanism

Fee accrual runs with a keeper-based architecture: accounting is performed and new fees are assessed only when triggered, reducing extra accounting overhead for user-facing Sommelier Cellar transactions.

External parties can call the checkUpkeep function to determine if new fees have been earned, and if new accounting should take place to accrue these fees to the platform. Each cellar can define its own upkeep parameters that determine when fees should be accrued:

  • Cellars should set frequency in MetaData to set a cooldown time between fee accrual calls.

  • Cellars can set maxGas in MetaData to make sure that fee accrual calls only happen when gas conditions are favorable. Since every position in a cellar must be read to accrue fees, the process can be gas-intensive for complex Cellars.

As long as cooldown periods and gas requirements allow it, for each Cellar, the accounting mechanism within _calculateFees will perform the following steps to determine new eligible fees:

  1. The cellar's total assets and total supply will be checked. These values will be divided to determine the exact pre-share price of the Cellar.

  2. The cellar will then calculate the new management fee: this is assessed on the delta in totalAssets between the current calculation and the last accrual, and is prorated such that managementFee is an annualized value.

  3. If the cellar's share price has surpassed the previous exactHighWatermark, new performance fees will be calculated. This is assessed on the delta in totalAssets between the current calculation and the last accrual, multiplied by the difference between the current share price and the previous high watermark. The fee is prorated such that performanceFee is an annualized value.

Once checkUpkeep completes, the caller will receive a list of Cellars that are eligible for new fee accrual, and how many new fees an accrual operation will accrue. Note that checkUpkeep is a view function and does not perform the accrual itself - performUpkeep must be called to update MetaData with any new fee accrual values.

Calling performUpkeep will perform the same operations as checkUpkeep, but create new storage entries that update the amount of fees owed based on the above calculations. The Chainlink automation registry can bypass repeated calculation and pass in the input of checkUpkeep directly, encouraging established and approved Keepers to use this feature.

Once fees have been accrued and MetaData updated with new owed fees, new share prices and TVL, and the latest accrual time, fees can be prepared for disbursement.

Fee Disbursement Mechanism

When the metaData struct for a given Cellar reflects new feesOwed, those fees can be withdrawn from reserves and disbursed to the platform. To do so, the prepareFees function should be called. This function will:

  • Debit feesOwed for the amount being prepared.

  • Debit reserves for the amount being prepared. The reserves for the Cellar must contain this amount to prepare fees.

  • Credit feesReadyForClaim, moving the assets out of Cellar MetaData accounting and into the withdrawal holding pool.

Once fees are in the withdrawal holding pool, they can be sent out to the platform and strategist using the sendFees function. Only feesReadyForClaim can be disbursed, and only the entire balance of ready fees can be sent. When called, sendFees will split earned fees into strategist and network portions, send strategist to the strategistPayoutAddress defined by the cellar. Platform fees will be sent to the Sommelier Chain via the Gravity Bridge.

Since disbursed fees are withdrawn from reserves, they are always delivered in the form of the reserveAsset. Strategists may need to re-deposit to reserves after a disbursement in order to facilitate future fee accruals.

Resetting High Watermark

In certain scenarios, Governance may reduce the high-watermark of a given Cellar. In these scenarios, the high-watermark cannot be increased. The resetPercent argument specifies in basis points what percentage of the delta between the cellar's current share price and the old high watermark should be removed from the new high-watermark. For instance, a resetPercent of 10000 will remove the entirety of the specified delta and reset the new high watermark to the current share price.

When resetting the high watermark, any owed fees are removed. Therefore in certain cases strategists should make sure to call prepareFees before the high watermark is reset.

FeesAndReserves Adaptor Functionality

Like other adaptors , the FeesAndReservesAdaptor wraps the relevant methods from the FeesAndReserves contract. The FeesAndReserves logic itself does not belong to the adaptor, since reserves are stored in an external contract and not in the cellar itself. The FeesAndReservesAdaptor enables all strategist-triggered functionality as specified in the documentation above.

Sommelier Cellar builders who wish to apply fees should use an already-deployed FeesAndReserves contract, and must have the FeesAndReservesAdaptor approved for their cellar.

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