Why Performance Fees Beat Flat Fees for LP Management

Most LP managers charge you whether you make money or not. Deposit fees, withdrawal fees, management fees, harvest fees. The meter runs regardless of performance.

MaxFi charges 15% of earnings. If you earn nothing, you pay nothing. This difference compounds over time into thousands of dollars of savings.

The Three Fee Models

Flat/Transaction Fees (Beefy model)

Beefy charges:

• 0.5% on deposit
• 0.1% on withdrawal
• Harvest call fees (variable, paid from vault earnings)
• Performance fee on harvest (typically 4.5%)

On a $10,000 deposit, you pay $50 immediately. Before earning a single dollar. Then 0.1% on withdrawal, plus ongoing harvest costs.

Performance-Only Fees (MaxFi model)

MaxFi charges:

• 0% on deposit
• 0% on withdrawal
• 0% management fee
• 15% of earnings only

On a $10,000 deposit, you pay $0 until you profit. If the pool earns $5,000, you keep $4,250 and MaxFi takes $750.

Hybrid/Custom Fees (Arrakis model)

Arrakis uses custom fee structures per vault deployment. Terms vary. Hard to compare directly because each deployment is negotiated.

The Math: Year One

Consider a $10,000 deposit in a blue-chip pool earning 50% APR over one year.

Beefy:

• Deposit fee: -$50
• Gross earnings: $5,000
• Harvest/performance fees (~9.5% effective): -$475
• Withdrawal fee: -$15
• Net: $4,460

MaxFi:

• Deposit fee: $0
• Gross earnings: $5,000
• Performance fee (15%): -$750
• Withdrawal fee: $0
• Net: $4,250

In this scenario, Beefy's lower performance cut results in slightly more net return. But this changes in two common situations.

When Performance Fees Win

Scenario 1: The Pool Underperforms

Your pool earns 10% instead of 50%. On $10,000:

Beefy:

• Deposit fee: -$50
• Gross earnings: $1,000
• Harvest/performance fees (~9.5%): -$95
• Withdrawal fee: -$15
• Net: $840
• Effective fee rate: 16%

MaxFi:

• Deposit fee: $0
• Gross earnings: $1,000
• Performance fee (15%): -$150
• Withdrawal fee: $0
• Net: $850
• Effective fee rate: 15%

When earnings are low, flat fees become a larger percentage of your returns. MaxFi's effective rate stays at 15% regardless.

Scenario 2: You Exit Early

You deposit $10,000 but withdraw after 2 months. The pool earned 3% in that period.

Beefy:

• Deposit fee: -$50
• Gross earnings: $300
• Harvest/performance fees: -$28
• Withdrawal fee: -$10
• Net: $212
• Effective fee rate: 29.3%

MaxFi:

• Deposit fee: $0
• Gross earnings: $300
• Performance fee (15%): -$45
• Withdrawal fee: $0
• Net: $255
• Effective fee rate: 15%

Short holds amplify the impact of flat fees. Beefy's $50 deposit fee alone is 16.7% of earnings on a 2-month position. MaxFi stays at 15% whether you hold 2 months or 2 years.

Scenario 3: The Pool Loses Money

Market crashes. Your position is worth $7,000 at exit.

Beefy:

• Deposit fee: -$50 (already paid)
• Loss: -$3,000
• Withdrawal fee: -$7
• Total cost: $3,057 (fees charged despite loss)

MaxFi:

• Deposit fee: $0
• Loss: -$3,000
• Performance fee: $0 (no earnings)
• Withdrawal fee: $0
• Total cost: $3,000 (no fees added to loss)

You lost money and Beefy still collected $57 in fees. MaxFi collected nothing.

Incentive Alignment

Performance fees create a simple incentive: the manager makes money when you make money.

This means MaxFi is motivated to:

• Optimize rebalancing to maximize fee capture
• Choose range widths that balance APR and IL
• Minimize costs (which is why zero-swap rebalancing exists)

Flat-fee managers earn revenue from deposits and transactions, regardless of performance. Their incentive is to attract deposits and encourage compounding (more harvest calls = more harvest fees), not necessarily to maximize your net return.

The Compounding Effect

Harvest fees deserve special attention. Auto-compounding vaults (like Beefy) harvest frequently to reinvest earnings. Each harvest triggers a fee. On a pool with daily harvests over a year, that's 365 fee events.

Even small per-harvest fees compound. If each harvest costs 0.03% of the vault, that's ~11% annually. Add the 4.5% performance fee on harvest, and the effective annual fee rate exceeds MaxFi's 15%.

MaxFi auto-harvests without additional fees. The 15% performance fee covers everything.

Degen Pool Impact

The fee model matters most on degen pools with high rebalance frequency.

Consider a degen pool earning 2,000% APR with daily rebalancing:

Swap-based manager with flat fees:

• Daily rebalance swap slippage: 0.5-2%
• Daily swap fees: 0.3-1%
• Annual slippage + swap fee cost: 100-400% of position value
• Plus deposit/withdrawal/harvest fees

MaxFi with zero-swap rebalancing:

• Daily rebalance slippage: 0%
• Daily swap fees: 0%
• Annual cost: 15% of net earnings

On a $10,000 degen position earning $200,000 in fees, MaxFi's 15% is $30,000. A swap-based manager with 200% annual rebalancing costs would consume $20,000 in slippage before performance fees even kick in.

This is why MaxFi's fee model and zero-swap rebalancing work together. The fee model aligns incentives. The rebalancing method eliminates the largest cost center.

Summary

Performance fees have one clear advantage: predictability. Your cost is always 15% of what you earned. No surprises, no hidden costs, no fees on losses.

Disclaimer

Fee comparisons are based on publicly documented fee structures as of March 2026. Actual fees may vary by vault, chain, and market conditions. Past performance does not guarantee future results. All DeFi protocols carry smart contract risk. This is not financial advice.