# Yield Mechanics

> **Real yield from cross-chain settlement fees.**

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## Where Yield Comes From

Sova vault yield is generated from **cross-chain settlement fees**. When users swap assets across blockchain networks through Sova, solvers use vault liquidity to execute these transactions and earn fees.

This is **real yield** from actual economic activity — not token emissions or inflationary rewards.

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## Fee Flow

When a user initiates a cross-chain swap, solvers fulfill the intent using vault liquidity. A 0.5% settlement fee is captured on each transaction. These fees accrue to the vault, causing the svBTC exchange rate to increase over time.

> **Sustainable Returns**
>
> Yield scales with swap volume. More users swapping = more fees = higher APY.

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## How Yield Reflects in svBTC

Sova uses a **share-based accounting system**. When you deposit, you receive svBTC tokens. Over time, the **redemption value of each token increases** as fees accrue.

| Feature          | Description                            |
| ---------------- | -------------------------------------- |
| **No claiming**  | Yield auto-compounds via exchange rate |
| **On-chain NAV** | Transparent and verifiable             |
| **Dashboard**    | Track performance in real-time         |

> **Simple Concept**
>
> Your svBTC balance stays constant. Its cbBTC redemption value grows.

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## Exchange Rate Example

| Timeframe       | Exchange Rate          | Your Holdings | cbBTC Value  |
| --------------- | ---------------------- | ------------- | ------------ |
| Day 0 (Deposit) | 1 svBTC = 1.0000 cbBTC | 1.0000 svBTC  | 1.0000 cbBTC |
| Month 6         | 1 svBTC = 1.0425 cbBTC | 1.0000 svBTC  | 1.0425 cbBTC |
| Year 1          | 1 svBTC = 1.0850 cbBTC | 1.0000 svBTC  | 1.0850 cbBTC |

After 1 year at \~8.5% APY, your 1 svBTC redeems for 1.085 cbBTC.

> **Note**
>
> This is illustrative. Actual yields vary based on swap volume and market conditions.

***

## Yield Factors

| Factor                 | Impact                                       |
| ---------------------- | -------------------------------------------- |
| **Swap Volume**        | Higher volume = more settlement fees         |
| **Network Activity**   | More cross-chain demand = better utilization |
| **Solver Competition** | Efficient solvers maximize fee capture       |
| **Vault Size**         | Larger vaults can serve more settlements     |
| **Market Conditions**  | Volatility often increases swap activity     |

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## Capital Efficiency

Vault liquidity is deployed efficiently across settlement routes. When an intent is detected, liquidity is accessed, the settlement is completed, and capital returns to the vault with fees. This cycle repeats continuously, creating a yield loop where capital is constantly working.

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## Fee Structure

| Fee                    | Rate | Recipient                   |
| ---------------------- | ---- | --------------------------- |
| **Settlement Fee**     | 0.5% | Vault (yield to depositors) |
| **Management Fee**     | 0%   | —                           |
| **Performance Fee**    | 10%  | Protocol (on profits only)  |
| **Deposit/Withdrawal** | 0%   | —                           |

> **Aligned Incentives**
>
> Protocol only earns when depositors earn. No fees on principal, only on profits generated.

***

## Comparison

| Option          | Yield Source      | Sustainability          |
| --------------- | ----------------- | ----------------------- |
| **Sova Vaults** | Settlement fees   | Scales with usage       |
| **DeFi Farms**  | Token emissions   | Dilutive, unsustainable |
| **CEX Lending** | Rehypothecation   | Counterparty risk       |
| **Staking**     | Inflation rewards | Network-dependent       |

Sova yield is backed by real transaction volume, not tokenomics.