Why a 2% APY upgrade can lose money: DeFi vault switching costs

Description and use

For a $10,000 position moving from 3% to 5% APY with 2 no-yield days and $24 total switching costs, the break-even date is day 49. The model turns positive at day 90 (+$22.58 gross), day 365 (+$173.26 gross), and remains negative through day 30 (−$10.30). If the reward-token incentive disappears entirely, the day-90 advantage falls from +$22.58 to about +$10.52.

Problem

Moving a DeFi stablecoin vault from a lower-APY position to a higher-APY position can consume months of the supposed upgrade due to trading fees, gas, bridges, vault withdrawals, token emissions, and days without yield, making the break-even date far later than expected.

Outcome

For a $10,000 position moving from 3% to 5% APY with 2 no-yield days and $24 total switching costs, the break-even date is day 49. The model turns positive at day 90 (+$22.58 gross), day 365 (+$173.26 gross), and remains negative through day 30 (−$10.30). If the reward-token incentive disappears entirely, the day-90 advantage falls from +$22.58 to about +$10.52.

Workflow

• Define principal ($10,000), current effective APY (3%), target effective APY (5%), incentive haircut (50%), delay days (2), and total switching costs ($24).
• Compute Stay(t) = principal × current_APY × t / 36,500.
• Compute Move(t) = principal × target_APY × max(0, t-delay) / 36,500 − all_costs.
• Compute Extra(t) = Move(t) − Stay(t).
• Find the horizon where Extra(t) ≥ 0; for these inputs it is day 49.
• Verify with the provided JavaScript function netDifferenceUsd({principal: 10000, currentApy: 3, targetApy: 5, costsUsd: 24, delayDays: 2, horizonDays: 90}) which returns 22.58.

Evidence

How many days of extra, realized, withdrawable yield would it take to recover every cost of moving?

APY is the numerator of your decision, not the decision itself. If you're moving a modest position, trading fees, gas, bridges, vault withdrawals, token emissions, and days without yield can consume months of the supposed upgrade.

With 3% versus 5% and two no-yield days, your break-even date is day 49, not day 0.

Day 30: Keep position yield $24.66; New position gross yield $38.36; Net extra after all $24 costs −$10.30.

Day 90: Keep position yield $73.97; New position gross yield $120.55; Net extra after all $24 costs +$22.58.

Day 365: Keep position yield $300.00; New position gross yield $497.26; Net extra after all $24 costs +$173.26.

If the candidate's reward-token incentive disappears entirely, the effective target rate falls to its assumed 4.5% base. The modeled day-90 advantage falls