> For the complete documentation index, see [llms.txt](https://docs.iaero.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.iaero.finance/getting-started/the-magic-of-iaero.md). # Fees & Earnings Users sometimes ask why the protocol takes a “rake” (deposit fee + weekly splits) and whether that’s extractive. This section shows, with formulas and concrete examples, why the design **shifts value from short‑term sellers to long‑term aligned users**, so that people who **stake iAERO** *and* **stake LIQ** can, in many scenarios, **earn more than 100% of a plain veAERO baseline**. *** ## The Flows (What Happens to Every Dollar of Rewards) Let **R** be the total weekly rewards the vault harvests from the veAERO strategy (bribes/fees/gauge rewards), normalized to a common unit (e.g. USD or AERO): * **80% → iAERO stakers** (via the Staking Distributor). * **10% → TreasuryDistributor** → **80% of this (8% of R) → LIQ stakers** → **20% of this (2% of R) → Protocol operations**. * **10% → Peg Defense Reserve** (used only when iAERO trades **below $0.85** to defend the peg and become buyer of last resort). Additionally, on **deposit**, the protocol mints **5% iAERO** to the treasury (the depositor gets 95%). That 5% is **protocol‑owned iAERO** (POI) which we typically **stake**. As sellers push price below $0.85, peg defense buys **more** iAERO at a discount, increasing POI. **Policy:** The protocol routes **80% of the protocol’s own iAERO staking rewards** to **LIQ stakers** (on top of the 8% base TreasuryDistributor flow). > Bottom line: **Sellers fund the protocol’s iAERO stack (via deposit fee + cheap peg buys)** → the protocol **stakes** that iAERO → **80%** of that **staking income** is **re‑routed to LIQ stakers**. If you are *both* an iAERO staker and a LIQ staker, you capture value in both streams. *** ## Notation (What Variables Mean) * **R** – total weekly harvested rewards (normalized). * **x** – your share of the **iAERO staking pool** (0–1). * **y** – your share of the **LIQ staking pool** (0–1). * **P** – the **protocol’s share of the iAERO staking pool** (0–1). (Grows from the 5% mint on deposits and from peg defense buys below $0.85.) * **Price threshold:** Peg defense *only buys* when iAERO **< $0.85**. *** ## Your Weekly Income (Formula) Your income has two legs: 1. **iAERO staking leg (80% of R):** You receive your pro‑rata share: $$ I\_{\text{iAERO}} = x \cdot 0.80 \cdot R $$ 2. **LIQ staking leg:** It receives: * **Base 8%** of R (from TreasuryDistributor), **plus** * **80% of the Protocol’s iAERO rewards**. Protocol’s iAERO rewards are **P × 80% × R**; routing **80%** of that to LIQ stakers adds **0.64·P·R** to the LIQ pool. So the **LIQ pool** distributes $(0.08 + 0.64P) \cdot R$, and **you** get: $$ I\_{\text{LIQ}} = y \cdot (0.08 + 0.64 P) \cdot R $$ **Total weekly income to a user who stakes both iAERO and LIQ:** $$ \boxed{I\_{\text{total}} = x \cdot 0.80R ;+; y \cdot (0.08 + 0.64P),R} $$ > **Key idea:** As **P** rises (more protocol‑owned iAERO from fees + cheap peg buys), the **LIQ pool** grows **non‑linearly** via the **+0.64 P** term. Sellers → more protocol iAERO → more flow to LIQ stakers. *** ## “More than 100%” – What Does That Mean? When people say “more than 100% of veAERO rewards,” they mean: compared to a **plain veAERO baseline** where a user with **1% of the veAERO** would expect **1% of R** each week, a user who **stakes iAERO (x)** and **also stakes LIQ (y)** can **exceed** that simple baseline because they tap **two** spigots (iAERO and LIQ), and **LIQ’s spigot** gets boosted by sellers via **P**. You’re not minting extra tokens out of thin air; you’re **capturing more of the pie** because: * **Some holders sell** iAERO under peg → protocol accumulates iAERO **cheaply**. * Protocol **stakes** those tokens → routing **80%** of that **staking income** to **LIQ stakers**. * If **you** are a LIQ staker, **you** get that incremental flow. *** ## Numerical Examples ### Example A – Baseline, No Protocol Share (P = 0) * **R = $100,000** weekly. * You stake **x = 1%** of iAERO; **y = 2%** of LIQ. * **P = 0** (no protocol iAERO yet). Income: * iAERO: $$1% \times 80% \times 100{,}000 = $800$$ * LIQ: $$2% \times (8% + 0.64\cdot 0)\times 100{,}000 = 0.02 \times 0.08 \times 100{,}000 = $160$$ * **Total = $960** **Plain veAERO baseline (1% of R) = $1,000.** Here you’re at **96%** of that baseline. (Reasonable when P=0.) *** ### Example B – Sellers Push Below $0.85 → Protocol P = 25% * Still **R = $100,000**; **x = 1%**, **y = 2%**. * Now **P = 25%** (protocol accumulated iAERO from deposit fees + cheap peg buys during drawdowns and staked it). Income: * iAERO: $$1% \times 80% \times 100{,}000 = $800$$ * LIQ: $$2% \times (8% + 0.64 \cdot 0.25) \times 100{,}000 = 0.02 \times (0.08 + 0.16)\times 100{,}000 = 0.02 \times 0.24 \times 100{,}000 = $480$$ * **Total = $1,280** **Plain veAERO baseline (1% of R) = $1,000.** Now you’re at **128%** of the baseline. The **extra $280** comes **entirely** from owning **LIQ** while **P > 0**. *** ### Example C – Peg Defense Buys at a Discount (Why P Grows Faster) If the Peg Reserve buys iAERO at **$0.80** using its **10% of R** budget: * Weekly peg budget \~ **0.10·R = $10,000**, * Price **$0.80** → it acquires **$10,000 / 0.80 = 12,500 iAERO** for the same spend, * Those tokens are **staked**; over time, **P** rises **faster** the deeper the discount. This is why drawdowns **help long‑term stakers**: sellers fund the protocol’s iAERO bag at a discount, and **80% of that bag’s yield** flows to **LIQ stakers**. *** ## Deposit Fee (5%) Is a Permanent Tailwind for P On every deposit: * User mints **95% iAERO** to themselves, * Protocol mints **5% iAERO** to treasury (protocol‑owned), * **Total iAERO issued = 100% of AERO deposited.** If both user and protocol stake at similar rates, the protocol’s **baseline share of the staking pool** starts near **\~5%** and **rises** as peg buys accumulate. Even **without** drawdowns, **P** trends upward with growth. *** ## What’s the Maximum “Community Capture”? At the **system** level, the split is always **80/10/10** of **R**. We don’t “create” extra rewards. But for **you**, if you hold **both** iAERO and LIQ, you combine: * Your **iAERO share** of the **80%**, **plus** * Your **LIQ share** of **(8% + 0.64·P)**. That’s how your **personal** capture can be **>100% of a plain veAERO baseline**, especially when **P** rises due to sellers. *** ## Edge Cases & FAQs * **Q: Does this guarantee >100%?** **No.** It depends on **P** (protocol iAERO share), your **x** and **y**, the weekly **R**, and market conditions. When there are few sellers and P stays small, your combined capture may sit near or below 100% of a plain veAERO baseline. * **Q: Is the peg always defended?** The **peg reserve buys only below $0.85**. It is **opportunistic**, not a constant market maker. * **Q: Why not send 100% to iAERO stakers?** The 10% → **TreasuryDistributor** (of which **8%** reaches **LIQ stakers**) and 10% → **Peg Reserve** make the system **antifragile**: sellers subsidize long‑term holders, and there’s capital dedicated to **buying at a discount** when it matters most. * **Q: Isn’t the 5% deposit fee just a tax?** It’s a **commitment device**: it seeds **protocol‑owned iAERO** that is **staked**, and **80%** of those earnings are **recycled to LIQ stakers**. Over time, this **transfers value from churn to conviction**. * **Q: Where does my LIQ yield come from?** Two places: (i) **8%** of weekly R (via TreasuryDistributor), and (ii) **80% of the protocol’s iAERO staking rewards** $\Rightarrow 0.64·P·R$ flows to the LIQ pool. When **P** grows, LIQ yield grows. *** ## TL;DR * **Sellers** of iAERO → increase **protocol iAERO** (via peg buys & the 5% deposit fee). * Protocol stakes that iAERO and routes **80% of its staking income** to **LIQ stakers**. * If **you** stake **iAERO** (**x**) **and** **LIQ** (**y**), your weekly income is: $$ I\_{\text{total}} = x \cdot 0.80R ;+; y \cdot (0.08 + 0.64P),R $$ * As **P** rises (especially during drawdowns), **LIQ** yield **accelerates**. * That’s how aligned users can **exceed** a plain **veAERO** baseline; not by printing new rewards, but by **capturing more of the pie** that sellers walk away from. > **Not financial advice.** Actual outcomes depend on markets, vote results, pool composition, and protocol params. The peg reserve only acts **below $0.85**. *** ## Worked “Quick Calculator” For a back‑of‑the‑envelope check: * Pick **R** (weekly rewards in USD). * Estimate your **x** (share of iAERO staking pool). * Estimate your **y** (share of LIQ staking pool). * Estimate **P** (protocol’s share of iAERO staking). > Rough guide: start \~**5%** from deposits; rises when iAERO **< $0.85** and peg defense buys; can be materially higher in stress. Then compute: * **iAERO leg:** $x \cdot 0.80 \cdot R$ * **LIQ leg:** $y \cdot (0.08 + 0.64P)\cdot R$ * **Total = sum**. Compare to a **plain veAERO baseline** of $x \cdot R$. If $y > 0$ and **P** is meaningful, you’ll often see **Total > $x \cdot R$**. *** ### Example Card (Doc Sidebar) > **Example:** $$R=$100k$$, $x=1%$, $y=2%$, $P=25%$ > > * iAERO: $$0.01 \times 0.80 \times 100k = $800$$ > * LIQ: $$0.02 \times (0.08+0.64 \times 0.25)\times 100k = $480$$ > * **Total = $1,280** vs plain veAERO baseline $$= 0.01\times 100k = $1,000$$. **You capture 128%** of the plain veAERO baseline. ***