# Profit Distribution

Profit distribution determines how trading returns are divided between stakers and agent creators. The model is simpler and cheaper than a traditional hedge fund. There is no management fee. Fees are charged only on profits, and only when an agent delivers them.

## No Management Fee

Traditional hedge funds charge 2% of assets under management annually, regardless of performance. Taurox charges nothing on capital. A staker's deposit works for them from day one with no annual drag on returns. The protocol earns revenue only when agents generate profits.

## How Profits Are Split

Every dollar of profit is split three ways: stakers, agent creators, and the protocol.

The protocol takes 5% of gross profits off the top. This 5% is converted to TAUX at market rates. Of the TAUX acquired, 30% is permanently burned and 70% flows to the protocol treasury governed by the DAO. The remaining 95% is then divided between the staker and the agent creator using a progressive split structure.

In periods where agents generate no profit or incur losses, no fees are charged. Stakers never pay fees on capital that has not produced a return.

**Example: $100 of agent profit within Standard bracket**

| Recipient     | Amount | Share                              |
| ------------- | ------ | ---------------------------------- |
| Protocol      | $5.00  | 5% (converted to TAUX, 30% burned) |
| Agent Creator | $15.00 | 15%                                |
| Staker        | $80.00 | 80%                                |

A staker on Taurox keeps 80% of gross profits within the Standard bracket with no management fee. A traditional hedge fund investor keeps roughly 78% after the standard 2/20 fee structure, plus loses an additional 2% of their capital annually to the management fee regardless of performance.

## Progressive Profit Split

The protocol uses a progressive split structure, similar to how tax brackets work. Each bracket of an agent's returns is split at its own rate. Lower brackets always retain a higher staker share. Only the marginal returns within each bracket are subject to that bracket's split.

This design eliminates cliff effects at tier boundaries. An agent crossing from one bracket into the next does not lose staker share on returns already earned in lower brackets. The result is a smooth, continuous increase in effective staker returns as agent performance improves.

| Tier     | Return Bracket | Protocol | Creator | Staker | Eff. Staker Return |
| -------- | -------------- | -------- | ------- | ------ | ------------------ |
| Standard | 0% – 20%       | 5%       | 15%     | 80%    | up to 16%          |
| Silver   | 20% – 40%      | 5%       | 20%     | 75%    | 16% – 31%          |
| Gold     | 40% – 120%     | 5%       | 30%     | 65%    | 31% – 83%          |
| Platinum | 120% – 300%    | 5%       | 43%     | 52%    | 83% – 177%         |
| Diamond  | > 300%         | 5%       | 52%     | 43%    | 177%+              |

The protocol's 5% share is constant across all brackets. As an agent performs better, the creator earns a larger marginal share, but the absolute return delivered to stakers grows continuously. A Diamond-bracket agent delivering 300% gross return produces 177% effective staker return, far exceeding the returns of an agent operating entirely within the Standard bracket.

**Example: Agent with 50% gross annual return**

The first 20% of returns is split at the Standard rate (80% to staker). The next 20% is split at the Silver rate (75% to staker). The final 10% is split at the Gold rate (65% to staker).

| Bracket   | Return Slice | Staker Share | Staker Return |
| --------- | ------------ | ------------ | ------------- |
| Standard  | 20%          | 80%          | 16%           |
| Silver    | 20%          | 75%          | 15%           |
| Gold      | 10%          | 65%          | 6.5%          |
| **Total** | **50%**      |              | **37.5%**     |

The staker receives 37.5% effective return. The creator receives 10%. The protocol receives 2.5%. Every dollar is accounted for at its bracket rate.

## High-Water Mark

Performance fees are assessed on a high-water mark basis. An agent earns performance fees only on net new profits, meaning returns that exceed the agent's previous highest portfolio value. If an agent generates a 10% return, then experiences a 5% drawdown, and subsequently recovers by 5%, no performance fee is charged on the recovery. The fee applies only once the agent surpasses its previous peak.

This mechanism prevents agent creators from earning fees on recovery from their own losses. It ensures that performance fees reflect genuine value creation for stakers.

## Staker Returns

Stakers receive the pool's net returns after all fees are deducted. Returns are not distributed as separate payments. Instead, they are reflected in the increasing redemption value of txTokens. A staker who holds txTokens benefits automatically from pool performance without needing to claim distributions.

## Fee Transparency

All fee calculations, collections, and burns are executed on-chain and publicly verifiable. Stakers can view the fee schedule, individual agent fee accruals, total fees collected, and total TAUX burned through the wallet interface and protocol dashboards.


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