§3 · The protocol
Fees and the burn
Wrap and unwrap fees are paid in cohorts. Most of them are burned, which leaves each remaining cohort backed by a little more stock.
A pod charges two fees, both fixed when it is created and both paid in cohorts. They collect in the pod's FeeVault until someone runs distribute_fees, which pays two small shares and burns the rest. The burn is the only yield a cohort has.
The two fees§
| Fee | Charged on | How | Limit |
|---|---|---|---|
| Wrap fee | every wrap except the genesis wrap | ceil(pod_amount × wrap_fee_bps ÷ 10,000) cohorts are minted to the FeeVault instead of to you | ≤ 200 bps |
| Unwrap fee | every unwrap and partial unwrap | the same share of the cohorts you return moves to the FeeVault instead of being burned | ≤ 200 bps |
The launch pods charge 30 bps on each side. Both values are stored in the pod and the program has no instruction to change them.
A wrap fee doesn't dilute anyone. The cohorts minted to the FeeVault are backed by components you deposited, because you paid for the gross amount. They sit in the supply like any other cohort until they are distributed.
The split§
distribute_fees empties the FeeVault in one go:
to_creator = floor( fees × creator_share_bps ÷ 10,000 )
to_protocol = floor( fees × protocol_share_bps ÷ 10,000 )
burned = fees − to_creator − to_protocol- Creator share: at most 1,000 bps (10%), chosen at
create_pod. The creator can lower it later withset_creator_shareand never raise it. - Protocol share: copied from the protocol configuration when the pod is created, and fixed for that pod from then on. The admin can't set it above 5,000 bps, and changing the configuration later doesn't touch existing pods.
- Burn share: everything else.
burn_share_bpsis stored as 10,000 minus the other two, and rounding dust from the two payouts burns too.
The devnet pods use the split the economics study assumed: 60% burned, 10% to the creator, 30% to the protocol.
Anyone can call distribute_fees. It pays the caller nothing and costs a network fee; the creator and treasury accounts it pays must be the right ones or it fails with InvalidFeeRecipient.
How a burn raises backing§
Burning cohorts lowers the supply and leaves every vault untouched. Backing per cohort is vault ÷ supply, so it goes up for every holder at once, without anything being sent to anyone.
A worked example. A pod has 1,000 cohorts outstanding and 40 SPYx in its SPYx vault, and 12 of those cohorts are sitting in the FeeVault:
distribute_fees, 12 cohorts in the FeeVault
- Creator (10%)
- 1.2 cohorts
- Protocol (30%)
- 3.6 cohorts
- Burned (the rest)
- 7.2 cohorts
- Supply
- 1,000 → 992.8
- SPYx per cohort (40 SPYx in the vault)
- 0.04 → 0.04029008
floor, paid to the creator's account
floor, paid to the treasury
+0.725% for every holder, with no transfer to anyone
Two things follow. The fees in the FeeVault are cohorts like any other, so until the burn they hold their own share of the backing. And the gain lands on every holder, including whoever wraps next: a later wrap pays the new, higher backing per cohort.
What to expect from it, honestly§
The burn is small. Cohort's economics study (docs/economics.md) simulated a year of trading against live Solana liquidity, with 30 bps fees and 60% of fees burned. Its headline results:
| Pod | Pool TVL | Wrap + unwrap fees per year | Burn yield per year |
|---|---|---|---|
| cMAG7 | $100k | $7.4k | 2.22% |
| cMAG7 | $1M | $21k | 0.64% |
| cMAG7 | $10M | $61k | 0.18% |
| cCORE | $1M | $19k | 0.58% |
| cCORE | $10M | $35k | 0.11% |
The yield is the burned share of fees divided by the cohorts outstanding, which the study assumed to be twice the pool's TVL. It falls as a pod grows, because fees grow more slowly than the supply.
The same study is blunt about why even those numbers may not hold:
- About 85% of the fee revenue comes from ordinary traders in the cohort's pool. Arbitrage on price moves alone earns cMAG7 about $3.3k a year (0.10%). Pool volume is the biggest unknown before launch: at a quarter of the assumed volume, cMAG7 earns $8.1k (0.24%).
- The fee can be avoided. A market maker holding some cohorts can trade the pool's swings without wrapping or unwrapping. If arbitrageurs work that way, only 3–10% of the fee revenue survives. Expect that once a pod is large enough to be worth it.
- Liquidity providers earn far more than holders. At the base volume, providing liquidity in the cohort's pool returned about 13% a year after arbitrage losses, roughly twenty times the burn.
Further detail, sensitivity tables and the simulator itself are in docs/economics.md and sim/ in the repository. For the full account of what can reduce backing, see §5 Issuer powers and risk.