Industry

How to calculate true APR/APY?

21/10/2023

Home | News & Insights How to calculate true APR/APY? Today we’re gonna talk about two important metrics – APR and APY. We’ll go over what they are, how and when to calculate them, and most importantly, how to use them to make smart farming decisions. Because let’s face it, when it comes to farming, it’s all about those “percentages”! Table of Content: Base. What is APR and APY? APR and APY are widely used in DeFi to help us understand the potential return we can earn by providing liquidity. Both metrics represent annual interest rates and are essentially forward-looking metrics. They are useful for predicting the potential returns we can earn from various investments. Here’s what each of them means: APR (Annual Percentage Rate) is the annual interest rate that is applied to the invested assets. APY (Annual Percentage Yield) is the annual interest rate that is applied to the invested assets, taking into account compound interest and other factors that affect the overall return. Calculating APR (Annual Percentage Rate) This is a basic metric for evaluating the profitability of a liquidity pool/asset/strategy. The main feature when calculating APR in DeFi is the strong fluctuations in parameters that affect profitability (TVL, volumes, fees, rewards per block, etc.). Therefore, sometimes to understand the “fairness” of APR, we need to look at the dynamics of these parameters. Calculating APY (Annual Percentage Yield) APY can be thought of as APR with a compounding function. This metric shows us the annual return taking into account reinvestment of the earned interest. It can be calculated differently from project to project. However, if you know your APR, you can easily calculate your APY. In summary, the difference can be presented as follows: What you need to understand about APR and APY: 1. APR and APY are calculated based on historical averaged data. In such a volatile market like crypto, extreme values can lead to statistical errors. In just one day, we can see pool volumes increase by hundreds or thousands of times, while the next day everything returns to previous values. Take a look at the screenshot of such a vault. 2. APR/APY are manipulative metrics in DeFi, with no standard for their calculation. Protocols are naturally interested in showing a high percentage. What tricks could be used in their calculation? 3. APR and APY are measures of profitability that do not take into account changes in the value of the underlying asset. Therefore, it is easy to see high APRs but suffer losses from a decrease in the value of LP tokens/tokens. But despite the fact that APR/APY have their peculiarities in DeFi and can significantly overestimate expectations, they still give us an understanding of the product’s profitability. Calculating the “true” APR/APY In reality, there is no “true” APR and APY. Any approach to calculating these metrics will be a simulation of future profitability. However, by delving into the model of generating profitability for a particular pool, you can choose a suitable approach to calculate these metrics – and this will be the most “true” APR/APY for you, as it will take into account your specific strategy parameters. Calculator APR/APY We have created a simple calculator for you in the form of a Google Sheet, which will help you calculate what income you can expect from different pools with various parameters. In it, you can also calculate the result with top-ups.Just make a copy of the table and use it👇 Leechprotocol | Calculator APR/APY What should you do next? Share: Twitter Facebook Telegram

Consensus 2023 and Leech Protocol’s Side Event

21/10/2023

Home | News & Insights Consensus 2023 and Leech Protocol’s Yield Farming Workshop Side Event Recap Leech Protocol’s team attended the Consensus Conference from the 26th to the 29th of April, where we networked with industry experts. On the 26th of April, the team also hosted a highly successful Yield Farming Workshop side event, bringing together yield farmers and partners to discuss important farming and liquidity mining topics. During the event, attendees had the opportunity to engage in a public speech about farming and participate in a Q&A session with our DeFi analysts and Product Advisors. The panel discussion that followed offered valuable insights into how to find real yield in DeFi, choose the right projects, and manage risks. Our team also showcased our unique farming approach, highlighting innovative features in the development that will offer farmers a more secure and profitable way to farm. The event concluded with networking and beer, providing an excellent opportunity for attendees to connect with other farmers and partners in the DeFi space. Overall, the event was a great success, offering attendees valuable insights and strategies to navigate the current crypto winter. What should you do next? Share Twitter Facebook Telegram

The history of farming and major problem

21/10/2023

Home | News & Insights The history of farming and major problem The Journey of Farming was started in the summer of 2020 from a few DeFi projects, like Synthetix, Compound, Yearn Finance… But all this started early before. All major players like Yarn Finance, YAM, and SushiSwap were launched during the DeFi Summer. The history of farming and major Problem To learn more about the history of farming and DeFI, please check this video. The problems of farming “liquidity mining” By creating farming incentivization or “liquidity mining programs” protocols printing their GOV tokens, and giving them as a reward to liquidity providers. As a result, we see more and more new GOV tokens on the market, significantly lowering the price. As an essential part of Farming, liquidity mining is an Inflationary mechanic in the protocol tokenomics. Healthy tokenomics Healthy tokenomics should have deflationary and Inflationary mechanics. By using both of them, the protocol can have a part of control over their GOV token price. In tokenomics, deflationary and inflationary mechanics refer to managing a token supply. Deflationary mechanics are designed to reduce the supply of a token over time. This can be achieved through various means, such as burning tokens (permanently removing them from circulation) or using a portion of transaction fees to buy back and retire tokens. Deflationary mechanics are intended to increase the value of a token by making it more scarce. Inflationary mechanics, on the other hand, are designed to increase the supply of a cryptocurrency over time. This can be achieved through various means, such as issuing new tokens (Farming) or using a portion of transaction fees to fund the development of the cryptocurrency. Inflationary mechanics are intended to increase the liquidity of a cryptocurrency and make it more widely available. Deflationary and inflationary mechanics can have a significant impact on the value of a token. Deflationary mechanics can increase the value of a cryptocurrency by making it more scarce, while inflationary mechanics can decrease the value of a cryptocurrency by increasing the supply. It is essential to carefully consider the implications of these mechanics before investing in a GOV token. What should you do next? Share: Twitter Facebook Telegram