# Yield & Fee Flows

Tharwa is designed to generate real-world yield - and to distribute it in a way that's sustainable, transparent, and aligned with users.

Instead of relying on token emissions, dilution, or unsustainable incentives, the protocol earns yield from a diversified portfolio of real-world assets. That yield flows into the system and is allocated between users, stakers, and protocol reserves based on clearly defined logic.

This page explains where the yield comes from, who earns it, and how Tharwa sustains itself as a long-term ecosystem.

### Where the Yield Comes From

Yield originates from Tharwa's actively managed portfolio, which includes:

* **Sukuk and faith-aligned fixed-income** (in designated vaults, not yet certified)
* **Global market assets** like real estate, gold, and oil
* **Short-term credit and structured products** (in higher-yield vaults)

The Confluence Engine dynamically adjusts exposure across these asset classes to optimize for real-world yield while minimizing tail risk.

Yield is realized off-chain and streamed back into the protocol at monthly intervals via trusted custodians and reporting systems.

### How Yield Enters the System

1. Assets generate yield off-chain
2. Protocol custodians receive and convert earnings into stablecoins
3. Stablecoins are deposited into TharwaPool
4. Yield is allocated based on protocol logic

### Yield Distribution Logic

Yield is split between the following parties:

| Recipient             | Purpose                                | Mechanism                        |
| --------------------- | -------------------------------------- | -------------------------------- |
| **sthUSD Holders**    | Reward for staking thUSD               | Auto-streamed yield in thUSD     |
| **sTRWA Stakers**     | Share of protocol revenues             | Rewards from fees + vault spread |
| **Protocol Reserves** | Buffer for peg defense + future growth | Treasury accumulation            |

This split is governed by vault-level parameters and can evolve through governance. In early phases, sthUSD receives the majority of net yield.

<figure><img src="/files/9E7cATYYAY1eiTloB8R1" alt=""><figcaption></figcaption></figure>

### Protocol Revenue Streams

Tharwa generates protocol-level revenue from multiple sources:

* **Vault Spread**\
  A margin between expected portfolio return and distributed yield (e.g., if a vault earns 7%, Tharwa might distribute 6% to users, keeping 1% as protocol revenue)
* **Early Exit Fees** *(on Risk-On Vaults)*\
  When a user sells a vault token early via OTC, a percentage of the discount is routed to the treasury
* **OTC Trading Fees** *(Coming Soon)*\
  2% fee on OTC stablecoin or vault token swaps
* **Redemption Spread**\
  thUSD redemptions may include a small buffer fee to prevent abuse and generate reserves
* **Staking Unlock Penalties**\
  Users exiting sTRWA early may incur a vesting penalty, which is partially burned and partially redirected to long-term stakers

### Sustainability Mechanisms

Yield distribution is designed to be:

* **Net-yield backed only** - no artificial inflation or emission farming
* **Adaptive** - vaults with lower performance distribute less; high-performance vaults are more rewarding
* **Governance-aware** - sTRWA stakers have oversight over how excess yield is used: rewards, buybacks, or reserve growth


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