> For the complete documentation index, see [llms.txt](https://sovavault.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://sovavault.gitbook.io/docs/sova-for-users/strategies/yield-mechanics.md).

# Yield Mechanics

## Where Does Yield Come From?

Sova strategies are built on the principle of **real yield** - returns that originate from real-world economic activity, not token incentives or emissions.

Each vault is powered by curated financial strategies managed by professional Yield Curators. These may include:

* **Interest income** from bonds or credit portfolios
* **Dividend payments** from ETFs
* **Fees or spread revenue** from lending or trade finance
* **Capital appreciation** in the underlying asset mix

> 📊 **NAV-Based Returns**
>
> All returns flow into the vault and are reflected in the updated **Net Asset Value (NAV)** of your tRWA token.

***

## How Is Yield Reflected in Your tRWA Token?

Sova uses a **share-based accounting system**. When you invest, you receive a fixed number of **tRWA tokens**. Over time, the **value of each token increases** as returns are earned.

* **No need to claim yield** - it's **automatically reflected** in your token balance's redeemable value
* **NAV updates are pushed on-chain** via the protocol's **Reporter** mechanism
* **You can track performance live** in the Sova dashboard

> 💡 **Simple Concept**
>
> Your token amount stays the same, but the value it represents grows.

***

## Illustrative Example (Simplified)

| **Action**         | **Value**                                  |
| ------------------ | ------------------------------------------ |
| **You deposit**    | **10,000 USDC**                            |
| **Strategy yield** | **8% annually**                            |
| **After 6 months** | Your tRWA token is worth **10,400 USDC**\* |
| Y**ou redeem**     | Receive **10,400 USDC** (net of fees)      |

> ⚠️ **Important Note**
>
> \*This is an illustrative example. Actual yields vary based on strategy performance, fees, and duration.

***

## What Affects Your Yield?

Several factors influence the yield you earn through Sova:

| **Factor**                  | **Impact**                                       |
| --------------------------- | ------------------------------------------------ |
| **Strategy Type**           | Credit vs. fixed income vs. active trading       |
| **Duration & Lock-Up**      | Longer lock-ups may result in higher returns     |
| **Fund Size & Allocation**  | Larger vaults may access better terms            |
| **Market Conditions**       | Interest rate shifts, credit spreads, volatility |
| **Platform & Manager Fees** | Yield is reported net of all fees                |

> 📊 **Transparent Reporting**
>
> Yield performance is net of all fees and is transparently reported within each vault's data dashboard.

***

## Fees and Transparency

Each strategy clearly discloses:

* **Vault management fee** (platform + Yield Curator)
* **Performance fee**, if applicable
* **Redemption or early-exit fees** for specific vaults

> 🔍 **Full Transparency Promise**
>
> Sova prioritizes fee transparency and ensures all returns shown are **net**, not gross or theoretical.