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Are you charging performance fees on Enzyme? This is a must read for you.

The V3 calculation method for performance fees has been improved due to its excessive on-chain complexity.


  • The V3 calculation method for performance fees has been improved due to its excessive on-chain complexity.
  • The V4 method is much simpler for the protocol and more beneficial for vault managers.
  • Managers can now accrue performance fees on a continual basis instead of waiting for the fixed crystallisation period and automatic fee collection.
  • An important implication for the high water mark must be carefully understood and managed to avoid friction with your depositors.

How were performance fees calculated on V3?

Before the deployment of our latest V4, also known as Sulu, the calculation of the performance fee was based on the concept of “Crystallisation Period” and “High Water Mark” (or simply HWM).

The crystallisation period was used to determine the frequency of the calculation and accrual of performance fees. For example, a 20% performance fee with a 90-day crystallisation period meant that the protocol would check every 90 days whether the share price was higher than the previous “High Watermark” HWM, and, if so, mint extra shares that accounted for 20% the appreciation since the previous payout.

In case of positive appreciation, the new higher watermark would then get recorded by the protocol and used 90 days later as benchmark reference for the next iteration.

This method has now changed in V4 Sulu

While the concept of a crystallisation period is important in traditional finance, it is also extremely complicated and gas-expensive to be properly implemented on-chain. As a result, we have decided to remove the concept of a “crystallisation period” from the protocol so that we can greatly simplify the implementation of performance fees.

Why does this matter for managers?

Removing the concept of a crystallisation period comes with a few implications that every manager should fully understand:

  • Performance fees can now be claimed manually at any time. In practice, it’s up to the managers to make their own call when they think it’s most appropriate or convenient.
  • As a result, managers can now potentially earn more performance fees through continuous accrual (instead of fixed quarterly or yearly accruals). Managers could arguably set the % rate for the new simplified performance fee lower than the rate of the previously used performance fee.
  • In order to implement the changes in the smart contract from V3 to V4, the high water mark had to be reset. In other words, the previous HWM cannot be carried over between V3 and V4. This means that when a manager upgrades their vault, the new high water mark is cut off at the exact share price upon upgrade (instead of the previous HWM).

How to manage a possible HWM mismatch

It’s worth noting that the last point described above could create some substantial HWM mismatch.

Let’s go through an example: a manager held a previous HWM of $2.50 and now the share is at $1.90. The manager upgrades their vault to V4, meaning the new HWM is suddenly $1.90, which is lower than the previous HWM. Although in principle this is economically beneficial for the manager, it could create some negativity among depositors who are confused by the mismatch.

If your are confronted with this situation, here’s a possible fix:

  • As soon as the share price hits $2.50 again (hopefully soon!) claim the performance fees and redeem the shares in your denomination token (e.g. USDC)
  • Get in touch with us at Avantgarde in order to airdrop the USDC back into the vault. This action will inject the funds into the vault without minting additional shares, thus not diluting the other depositors.
  • Great! You got back right where you left off at $2.50 and most likely with lots of extra goodwill for your fair play!

All the rest stays the same

All the other principles that govern the calculation and accrual of performance fees remain the same as they used to be. For further details and explanations you can refer to this article.

Get started or get an upgrade!

It’s time to connect your wallet and create your own vault if you haven’t done so yet. And if you already have a vault, it’s time to upgrade to V4 Sulu to enjoy a fully revamped vault management experience!

If you’re still on the fence or have additional questions, do not hesitate to get in touch with us through our Telegram or Discord channels.