How the heck is APY calculated??
For our 4-week Ethlas Windblown Staking event, we’ve been mentioning that users can earn up to 702% APY through staking rewards by:
- staking early
- selecting the longest lockup period
- remaining staked even after the lockup expires
In this article, we aim to demystify how we derived our APY estimates. Let’s go!
- How rewards are distributed
- How we derived 702% APY
- How to exceed earning 702% APY
- Appendix: Simplified rewards allocation example
How rewards are distributed
First, some ground truths:
- GEM rewards are being paid out over 30 weeks from event launch (28 Dec 2021), with a varying payout every 12 hours (see release schedule below). Once you stake your tokens and receive an sGEM, you will start accumulating rewards within 12 hours.
- Rewards will only be available to users who provide liquidity in the event duration (up to 40 million in xGEMs and equivalent MATIC pair) and staked their LP tokens with us. (For a guide on how to stake, refer to our previous article.)
- Your share of rewards is determined by the size of your stake and lockup period (6, 13 or 26 weeks). For the same stake, a 26-week lockup entitles you to an outsized 7x share of the rewards over a 6-week stake.
- Staking earlier qualifies you for more GEM rewards over the 30-week rewards span. If you choose to remain staked after lockup expires, you continue to receive your share of rewards in the same weightage.
How we derived 702% APY
Firstly, what is annual percentage yield (APY)? Here’s the definition on investopedia:
APY is the real rate of return earned on an investment, taking into account the effect of compounding interest…APY is the actual rate of return that will be earned in one year if the interest is compounded.
Further notes on our APY computation:
- APYs are annualised from projected GEM rewards received during lockup period only.
- xGEM price at the point of rewards release (not lockup expiry) is used for APY computation.
In our case, we have preset a fixed rewards schedule to be distributed among sGEM holders. This means that your rewards will be affected by other users’ actions as well as your own:
Despite the uncertainty of user actions, we produced APY forecasts in our simulations, using a number of assumptions. In the spirit of transparency, here’s the list of our assumptions:
- Staking volume builds steadily over the 28-day event, filling up the 40-million xGEMs quota on day 26.
- 70% of staking volume is concentrated in the longest lockup option (26 weeks) due to the favourable reward multiplier.
- There is healthy token swapping volume in the liquidity pool, leading to a steady increase in xGEMs price, to 2x of launch price after 30 weeks.
- Among users who are eligible to unstake, only a small percentage (0.1%) do so each day. (We used a low estimate for this figure due to our unique sGEM NFT feature. We are also working on providing more utility to sGEMs to reward users who have supported us by staking.)
Based on these assumptions, we produced these estimated maximum APYs for each lockup option, which the early stakers enjoy based on our simulations.
How to exceed earning 702% APY
Although 702% was the highest APY in our simulations, we were quite conservative in our simulations. There are ways you can exceed this figure:
1. Sell your sGEM NFT on OpenSEA to another user
The limited supply of sGEMs from limited minting and others burning their NFT for GEM rewards means you can expect strong sGEM prices in the secondary market. If you are lucky to get an sGEM in a higher rarity tier, it could command even higher prices.
2. Price increase of xGEMs
Your GEM rewards are worth more if the price of each xGEM is higher. If xGEMs go to the moon, your APY will also be multiplied accordingly.
3. HODL even after your 26-week lockup expires
When the crowd unstakes, that is your chance of earning an outsized share of the reward. We are also contemplating extending rewards beyond 30 weeks, even though many other projects cease rewards after the lockup period.
Appendix: Simplified rewards allocation example
Here is an example of rewards computation for a simplified case of 3 stakers:
- Staker 1: Stakes 1,000 QuickSwap tokens with 6-week lockup (1x multiplier)
- Staker 2: Stakes 2,000 QuickSwap tokens with 13-week lockup (3x multiplier)
- Staker 3: Stakes 500 QuickSwap tokens with 26-week lockup (7x multiplier)
Here is what they are eligible to receive from the 12-hourly rewards:
- Staker 1: 1,000*1 / (1,000*1+2,000*3+500*7) = 10% of rewards
- Staker 2: 2,000*3 / (1,000*1+2,000*3+500*7) = 57% of rewards
- Staker 3: 500*7 / (1,000*1+2,000*3+500*7) = 33% of rewards
If Staker 2 unstakes after lockup expires, the other stakers will receive a higher share of the preset rewards:
- Staker 1: 1,000*1 / (1,000*1+500*7) = 22% of rewards
- Staker 3: 500*7 / (1,000*1+500*7) = 78% of rewards
Ethlas is a F2P/P2E GameFi Metaverse, the casual games aggregator platform for players to play games and earn crypto rewards. Voted “Best NFT/GameFi project in 2021” by Polygon Foundation, and ranked #1 blockchain casual game on playtoearn.net. We are the largest GameFi project headquartered in Singapore, with a stacked team of founders and backers.