Performance Fee vs Flat Fee: Why Aligned DeFi Yield Beats the Alternative by $710/Year
Snuggle charges 15% of LP trading fees earned — nothing on deposits, withdrawals, or principal. Compare performance fees vs flat fees across 18 backtested scenarios. $10K → $18,550 net (backtested).
Your yield protocol charges you whether you make money or not. Ours can't.
The smart contract literally will not let us take a fee unless your position earned something first. Zero earnings, zero fee. That's not a marketing promise — it's how the code works.
We replaced our flat 0.04% per-rebalance fee with a 15% performance fee on earnings only. On a $10,000 position, that's the difference between $18,550 in your pocket (performance fee) and $17,840 (flat fee) after one year of backtested data. $710 more — same capital, same market, different fee model.
Here's why we did it, what the data shows, and why it changes everything about how DeFi fees should work.
The Problem with Flat Fees
Our old model charged 0.04% of your position value on every rebalance. It was already the lowest in the industry — but it had a fundamental misalignment:
- You paid whether you earned or not. If the market moved against you and your position earned nothing, you still paid on every rebalance.
- We got paid the same regardless. Whether your position earned $10,000 or $10, our fee was identical.
- Cost scaled with position size, not success. A $100,000 position paid 250x more than a $400 position — even if they earned identical returns.
The flat fee was fair by industry standards. But fair isn't good enough. We wanted aligned.
The data confirmed the problem. During the November 2025 correction, positions rebalanced more frequently but earned less per rebalance. Users paid more in fees during their worst-performing months. That single observation is what made us change everything.
The Alignment Principle
Here's the core idea — and it's the reason everything else in this article exists:
Old model: Snuggle earns more when you rebalance more — regardless of whether rebalancing helps you.
New model: Snuggle earns more only when your position earns more.
This alignment changes our incentives at every level:
- Strategy optimization — We're incentivized to find the settings that maximize your fee earnings, not the settings that maximize rebalance frequency.
- Pool selection — We're incentivized to add pools where users actually earn well, not just pools that rebalance often.
- Feature development — Every improvement we make to the protocol directly increases our revenue only if it increases yours first.
When your interests and your protocol's interests point the same direction, good things happen. The data proves it.
How the Performance Fee Works
The model is dead simple:
- Snuggle takes 15% of the LP trading fees your position earns
- You keep 85%
- If you earn nothing, you pay nothing
That's it. No fee on deposits. No fee on withdrawals. No fee on your principal — ever. The 15% only applies to the trading fees the DEX pays you for providing liquidity.
A Real Example
Say you deposit $10,000 and your position earns $1,000 in LP trading fees over a period:
| Amount | |
|---|---|
| Trading fees earned | $1,000 |
| Snuggle's 15% fee | $150 |
| You keep | $850 |
| Fee on your $10,000 principal | $0 |
If your position earns $0 in fees? Snuggle earns $0. We literally cannot make money unless you do first.
Your Risk Is Our Risk
This is the part most DeFi protocols won't offer you: if our strategies don't generate trading fees for your position, we earn exactly zero.
In traditional DeFi, you carry all the risk. Position goes sideways? You still pay. Protocol has a bad month of strategy? You still pay. The risk sits entirely on you.
We reversed that.
Snuggle absorbs the risk of its own performance. This isn't a money-back guarantee you have to request — it's automatic, on-chain, and enforced by code. Your downside on fees is literally zero. Your 85% is not a promise from a team. It's not a setting in an admin panel. It's enforced by immutable smart contract code that has been through 30 security audit iterations. No one at Snuggle can change your 85% share without deploying an entirely new contract.
Your certainty isn't based on trust. It's based on math and code.
The Data: 18 Scenarios, Performance Fee Wins
We ran our optimizer across 18 market scenarios (6 pools x 3 market conditions) comparing the old flat fee to the new performance fee.
The performance fee produced higher user returns in 12 out of 18 scenarios.
Here's what that looks like on $10,000:
| Fee Model | Average 365d Return | $10,000 Becomes |
|---|---|---|
| Performance fee (15% of earnings) | +85.5% | $18,550 |
| Flat fee (0.04% per rebalance) | +78.4% | $17,840 |
| Difference | +$710 |
The performance fee wins because it doesn't penalize you during periods when your position is earning less. In a bear market, your position rebalances frequently but may earn lower fees per rebalance — the flat fee compounds against you. The performance fee automatically scales down when earnings are lower.
In bear market scenarios specifically, the performance fee won every single pool. When you need protection most, aligned incentives deliver it automatically.
What Our Data Taught Us About LP Fees in DeFi
When we ran 18 scenarios across 6 pools, we learned something that applies to ANY LP strategy: flat fees disproportionately penalize you in bear markets because rebalance frequency goes up while per-rebalance earnings go down. This is true regardless of which protocol you use.
If you're evaluating any LP vault, ask one question: does the fee scale with my earnings or with my position size? The answer tells you whose side the protocol is on.
Run Your First Backtest Now
30 seconds. Completely free. No signup required. Pick any pool, choose your market outlook, and see exactly what your deposit would have returned using 365 days of real data.
Run Backtest Now →What Makes This Different from Other Performance Fees
Most LP vaults charge one of three ways: management fees on your total deposited value (you pay regardless of performance), flat per-action fees (you pay more when markets are volatile and your returns are lowest), or performance fees on unrealized gains (you pay on paper profits that can evaporate). Some charge all three simultaneously.
We charge one way: 15% of the LP trading fees your position actually earns. That's it. If that number is zero, our fee is zero.
But the fee model is only half the picture. Snuggle is a Zero-Swap Performance LP — a protocol where the underlying architecture (no swaps, no slippage, no MEV, ~50% less impermanent loss) is paired with a fee model where we only earn from the trading fees we help you capture.
Both halves matter. Without the zero-swap architecture, a performance fee is just taking 15% of suboptimal returns. Without the performance fee, zero-swap is just a feature. Together, they create something that didn't exist before.
What About Referrals?
The referral program updated too. Referrers now earn 3% of the trading fees their referrals generate. This comes from Snuggle's 15% share — your referrals always keep their full 85%.
Here's the split on $1,000 of earned trading fees:
| Recipient | Amount |
|---|---|
| You (the LP) | $850 |
| Snuggle | $120 |
| Your referrer | $30 |
If you weren't referred by anyone, Snuggle keeps the full 15%. Either way, you always keep 85%.
What Didn't Change
The zero-swap architecture alone — eliminating slippage, MEV, and swap fees while cutting IL roughly in half — delivers more value than most protocols charge 2% annual management fees for. Our 15% only applies to the earnings this architecture generates for you.
Everything that made Snuggle's architecture unique is exactly the same:
- Zero swap fees — we never swap your tokens
- Zero slippage — no trading means no price impact
- Zero MEV — impossible to sandwich a non-trade
- ~50% less impermanent loss — deferred via single-sided repositioning
- No lockups — withdraw your full position anytime
- Auto-compound — matching-token fees reinvested automatically
- 15 pools — across Uniswap V3, Aerodrome, and PancakeSwap on Base
- Strategy presets — Aggressive, Moderate, and Conservative options optimized per pool
The zero-swap architecture is still the moat. The performance fee just makes the economics fairer.
Two Futures
Imagine two versions of yourself one year from now.
In one, your capital has been sitting in a vault where you paid fees every month regardless of returns — and during the three worst months, you paid the most while earning the least.
In the other, your capital has been in a vault where fees disappeared during those same bad months, and during the good months, you kept 85% of everything your position generated.
Same capital. Same market. Different alignment. The only difference is which vault you chose today.
Try It Now
The backtester already reflects the performance fee model. Every return you see is your net return after Snuggle's 15%.
Go to snuggle.fi/backtest right now. Type in $10,000. Select WETH/USDC. Click "Run." It takes 30 seconds. You'll see your net return with real market data going back 2+ years. If the numbers make sense for you, deposit and start earning — from first deposit to first rebalance, the median time is under 10 minutes. One transaction, and Snuggle handles everything from there.
If the numbers don't convince you, you paid nothing to find out.
Start Earning in Under 5 Minutes
Connect your wallet, use the optimized defaults, and start earning real trading fees. No lockups. No minimums. Withdraw your full position anytime.
Start Earning Now →Frequently Asked Questions
How much does Snuggle charge?
15% of LP trading fees earned. Nothing on deposits, withdrawals, or your principal. If your position earns $0, Snuggle charges $0.
What is a performance fee in DeFi?
A performance fee is charged only on earnings, not on deposited capital. Unlike management fees (charged on your total balance) or flat per-action fees (charged regardless of performance), a performance fee aligns the protocol's income with your results. Snuggle's 15% performance fee applies only to LP trading fees your position actually generates.
Do I pay fees if my LP position loses money?
No. Snuggle's fee is 15% of earned trading fees only. If your position earns zero trading fees, your fee is zero. The protocol cannot charge fees on losses or on your deposited principal.
How does Snuggle's fee compare to other LP vaults?
Most LP vaults use management fees (typically 1-2% annually on total deposited value), flat per-rebalance fees, or performance fees on unrealized gains. Snuggle charges 15% of realized LP trading fees only — no management fee, no deposit fee, no withdrawal fee. In 12 out of 18 backtested market scenarios, users kept more under Snuggle's performance fee than under the previous flat fee model.
Is the 15% fee enforced on-chain?
Yes. The performance fee is enforced by the smart contract, rate-limited to prevent manipulation, and verified across 30 security audit iterations (V30 audit: 0 critical, 0 high, 0 medium vulnerabilities). Your 85% share is guaranteed by code, not promises.
All returns are backtested using historical price and APR data and do not guarantee future performance. The performance fee applies only to LP trading fees earned, never to deposited principal. Liquidity provision involves risk, including impermanent loss and smart contract risk. This is not financial advice — do your own research.
P.S. — We only make money when you make money. That's not a marketing line — it's literally how the smart contract works. The 15% is enforced on-chain, rate-limited to prevent manipulation, and verified across 30 security audit iterations. Your 85% is guaranteed by code, not promises.
P.P.S. — A $10,000 position in our WETH/USDC 0.30% pool earned $8,550 net over 365 backtested days under the performance fee model. Under the old flat fee, the same position earned $7,840. That's $710 more in your pocket — same pool, same market, same capital. Run the numbers yourself at snuggle.fi/backtest.