Moonfarm Yield Farming APR Explanation
🔍[The Fluctuation of Yield Farming’s APR]
Currently, there are many Yield Aggregator platforms in the cryptocurrency market with high APR rates attracting users. However, not everyone is fully aware of the characteristics of APR including how it works and its volatility.
This article may explain why the APR is not fixed. There are 3 main reasons mentioned:
1️⃣ The reward of any farming pool is fixed, so an increase in TVL will lead to a decrease in APR.
Basically, a pool’s APR is calculated based on the pool’s rewards divide to the pool’s TVL. The more % of TVL a person has, the more rewards they will receive.
Let’s take the normal LP token WBTC/WETH on Sushiswap and Liquidity providers earn a 0.25% fee on all transactions as an example. Assume this pool have:
Total value locked: $500M.
Volume 24H: $50M.
To calculate the APR, first, we need to calculate transaction fees per day by the 24hour volume: $50,000,000 x fee-share of LP-holders: 0.25%
[$50,000,000*0.25% = $125,000].
Next, we estimate the yearly fees based on the 24h volume
[$125,000*365 = $45,625,000].
Now we can calculate the fee APR with yearly fees divided by TVL
[($45,625,000/$500,000,000)*100 = 9.12%].
As you have seen, if the number of TVL increases, the percentage of APR will decrease. This will decrease faster if the pool’s rewards are fixed. Rewards will be paid gradually until the end so %APR will also decrease gradually
2️⃣ The price of the reward token fluctuates leading to a change in the APR.
Tokens used to pay rewards will be affected by price. Suppose, the $CAKE reward to users receive today is 1 token, tomorrow the $CAKE price doubles, users will only receive 0.5 token. How APR rewards at Moonfarm work will be explained in part 3.
3️⃣How Moonfarm Finance yield optimizes the APR.
Let’s take the BNB vault as an example. Assume that the BNB vault has 100 BNB staked in it.
Moonfarm takes 100 BNB to match with 2 different tokens X & Y to farm in 2 different places.
Pool 1: BNB-X LP token with APR = 50%
Pool 2: BNB-Y LP token with APR = 70%
So 50BNB will go to Pool 1 and 50BNB will go to Pool 2.
- Rewards per year from Pool 1 = 50*0.5 = 25BNB
- Rewards per year from Pool 2 = 50*0.7 = 35BNB
- Rewards per year of BNB vault will be = 25 +35 = 60BNB
👉 APR of BNB vault on Moonfarm = 60/100 = 60%
This is the very basic scenario. In fact, BNB will go to as many farming places as in BNB vault smart farming strategy.
Since the APR of Pool 1 and Pool 2 changes every day and the farming strategy optimization happens constantly, the APR of Moonfarm will change accordingly.
🌔In short, it is common sense for APRs to change and not be fixed frequently in Yield aggregators if you understand how it works. However, MoonFarm’s products always ensure sustainable profits and the best experience for the MoonFarmer community.
Thank you for listening and experiencing MoonFarm Finance’s products💙💙💙