How Yield Generation Works
Reward claiming
How money-market rewards are earned through Merkl, who claims them, and how they come back to holders as more stock after being sold, donated and harvested.
Money markets often pay extra rewards to the people who supply or borrow there, on top of interest. The strategy earns these on its positions, but they do not reach holders on their own. They have to be claimed, turned into the stablecoin and given back, and are then harvested into stock. This page explains each step and what holders rely on.
Key points
- Reward programs at money markets are paid through Merkl, a reward distribution service. The strategy earns them on its collateral, its debt and its lending.
- Only the operator can claim. A claim forwards the rewards to an address the operator chooses, and moves nothing that is counted for holders.
- Rewards reach holders once they are sold for the default stablecoin, donated back, and harvested into stock.
- Total APY includes eligible rewards after the performance fee. Until rewards are brought back, they are not in share value or the stablecoin book.
Where rewards come from
A money market can run a reward campaign that pays a token to everyone who supplies or borrows a given asset there. Many campaigns are paid through Merkl. Merkl works out what each address earned and publishes proofs, and a distributor contract pays out whoever claims with a valid proof.
Rewards can be earned in three places: on the stock posted as collateral, on the stablecoin borrowed, and on what is lent. The curator sets which Merkl distributor rewards are claimed from, behind its delay. Setting none turns claiming off.
Who claims them
Only the operator can call the claim function on the vault, the contract that holds supplied stock (see Using a vault). A claim does two things:
- It claims the named reward tokens from the Merkl distributor, paying them to the contract.
- It forwards all the contract holds of each named token beyond what it counts, to a destination the operator chooses.
The contract counts its own ledgers, never its raw token balances, so a claim can never move stock or stablecoins that belong to holders. On tango.finance, the claim forwards rewards to the operator's account, which sells anything other than the default stablecoin and donates the proceeds back in the same sequence of transactions. Each step is simulated in order before it is sent.
Merkl can also claim on the contract's behalf. Rewards claimed that way sit uncounted until the next claim that names their token forwards them.
How rewards reach holders
| Step | What happens |
|---|---|
| Claim | The operator claims the rewards and forwards them to its own account |
| Sell | The reward tokens are sold for the default stablecoin |
| Donate | The stablecoin is donated back, where it joins the stablecoin book as surplus |
| Harvest | A harvest swaps the surplus into the stock, after the performance fee |
Once the proceeds are harvested, every share holds more stock, exactly as with interest. Rewards therefore carry the same performance fee as any other profit.
How rewards show in Total APY
Total APY on each stock's page adds a Rewards rate to Money Market APY. The Rewards rate counts live campaigns on the strategy's own positions: each supply campaign on the stock posted as collateral, and each borrow campaign on the stablecoin borrowed. It is measured against Vault TVL, after the performance fee. Rewards that lending venues report as part of their own yield are already in Lending APY.
Campaigns change and end on the money markets' own schedules. The Rewards rate shows what campaigns pay today, not what will be received.
The curation service does not count rewards when it decides how much to borrow or where to lend, since they arrive only once claimed and brought back.
What holders rely on
Rewards are outside the contract's accounting until they come back. Holders rely on the operator to claim them, sell them and donate the proceeds. A holder who leaves before the proceeds are harvested does not share in them. See Risks.