Gradient Decay Profit-Sharing Model

Teahouse Finance created its innovative Gradient Decay Profit-Sharing (GDPS) Model to fairly govern the collection of profits.

If you are interested in reading more about why Teahouse designed this model, please see the “Background” tab on this page.

How the Gradient Decay Profit-Sharing model works

Teahouse’s proprietary GDPS model is designed to redefine the dynamics of profit-sharing for strategy managers/providers.


When a strategy successfully generates profits, the smart contract locks the performance fees destined for the manager. The innovative aspect of the GDPS model lies in the gradual release of these performance fees over time, introducing a temporal dimension to the claiming process.

The allocated performance fees (i.e., the manager’s profits) undergo a gradual "unlocking" process, wherein the amount of locked fees the manager can claim gradually decays over time. For instance, the smart contract can be configured so that the manager can claim only 20% of the fees entitled to them after six months. By the twelfth month, they can claim 20% of the remaining profit from the sixth month.

We can use the figure below to illustrate. Let us assume the manager’s initial profits are 100 USDC. In Month 0 (M0), all 100 USDC of the manager’s profits are locked, but by Month 6 (M6), they can claim 20% of their profits, which would be 20 USDC. After the manager has claimed the 20 USDC in M6, 80 USDC in profits will be left (still locked).

By Month 12 (M12), 20% of the remaining profits (80 USDC) will be claimable, which would be 16 USDC, and so on and so forth. This shows that the amount of profits the manager can claim will gradually diminish over time unless they can increase the strategy’s performance to generate more profit.

Upon Loss

In the event of losses, all upfront profits earned by the strategy manager are reinvested back into the strategy pool. This ensures that any losses are absorbed by the manager's initial profits rather than impacting users directly.

Looking at the figure below, we can see that when the profit drops to zero, all previous profits entitled to the strategy manager are returned to zero until the strategy starts to make a profit again.

The GDPS model is a strong deterrent, preventing strategy managers/providers from manipulating short-term gains or engaging in actions harmful to investors. By ensuring accountability and stability, the model safeguards the long-term success of the strategy and its protocol.

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