# Protocol Economics

Underscore generates revenue through fees on value-generating activities. Most of that revenue comes from a 20% performance fee on vault profits, so the protocol earns when vault users earn. 100% of protocol revenue is used to buy back [$RIPE](https://app.ripe.finance/ripe) in the open market.

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## Revenue Sources

### Vault Performance Fees (Primary)

The largest source of protocol revenue comes from [Underscore Earn Vaults](/earn-vaults/vaults.md). That includes both Core Vaults and Amplified Vaults.

* **Fee**: 20% of yield profits
* **Applied to**: Profits only, never principal
* **When charged**: When yield is realized

**Example**: A vault generates $100,000 in yield across all depositors

* $20,000 → Protocol revenue
* $80,000 → Distributed to depositors via increased share price

Vault performance fees scale with protocol TVL and yield performance, making this the primary revenue driver as Underscore grows.

### Swap Fees

Charged on token swaps executed through Underscore wallets.

* **Fee**: 0.25% of trade amount
* **Applied to**: All swaps (including stablecoin pairs)

**Example**: $10,000 swap → $25 fee

### External Reward Claim Fees

Charged when claiming rewards from integrated protocols (MORPHO, WELL, AERO, etc.).

* **Fee**: 20% of claimed rewards
* **Applied to**: External protocol incentives only

**Example**: Claim $200 in MORPHO rewards → $40 fee

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## What's Free

No fees on:

* Transfers between wallets
* Deposits and withdrawals
* Idle funds
* Debt operations (borrowing/repaying)
* Liquidity provision
* ETH/WETH wrapping

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## Revenue Allocation: $RIPE Buybacks

100% of protocol revenue is used to buy back [$RIPE](https://app.ripe.finance/ripe) in the open market.

As Underscore usage grows, buyback demand scales with it and flows back into the broader ecosystem.

**Verify onchain**: View current fee parameters in the [Params Explorer](https://params.underscore.finance/protocol).

***

## Summary

| Revenue Source    | Fee             | Relative Size             |
| ----------------- | --------------- | ------------------------- |
| Vault Performance | 20% of yield    | Largest (scales with TVL) |
| Swap Fees         | 0.25% of amount | Medium                    |
| External Rewards  | 20% of claims   | Smaller                   |

**100% of revenue →** [**$RIPE**](https://app.ripe.finance/ripe) **bought back in the open market**


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