APY?

in LeoFinance3 months ago

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So we've all heard of APR...

But what about APY?

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What is that?

Nine million percent gains in a year?
That can't be right.
Must be some kind of bug, yeah?

Actually... not.

APY is short for Annual Percentage Yield.


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How is that different than APR?

Yield is what you get when you compound your gains. The interest you earn is rolled into the collateral. In essence APY calculates how much one earns on the principal, the interest on the principal, the interest on the interest, and so on. It all gets compounded into a single money "farm".

It can't be that high...

Can it not? If we earn 3% APR a day, that's 1095% APR per year. However, if you compound the farm you take 1.03^365 power and end up with x48,482. After removing the initial principal, we're left with x48,481. Converted to a percentage would be a 4,848,272% gain. Many would call this a pretty decent return.

Unsustainable

APY assumes interest creates interest, but we know that interest does not create interest on the CUB network. A flat rate of CUB (1 per block) will be created on a linear scale after Monday's yield reduction.

The reason why these APY numbers are so obscene is that they assume a constant interest rate, and this interest rate is anything but constant on CUB Finance. Every coin that gets minted is essentially thrown back into the pools and increases competition on the farm: thus reducing the APR/APY over time.

Because APR is fixed rate but APY is an exponential function, the difference between the two becomes massive on high yield assets. We can see the example I did was 3% interest per day, but the interest per day on the screenshot I took at the top of this post was 3.18%. No biggy right?

Well if we take a look even a small difference like 3% vs 3.18% is huge when calculating APY. In my example we got a 4,848,272% return while an APR of just 0.18% more turned out to be 9,249,102%. A 6% difference in APR created a 52% difference in APY due to the exponential nature of compounding interest.

What about 1% APR per day?

Competition in these pools will continue on as all the CUB gets rolled back into the farms, further reducing the APR/APY. 1% APR a day (365% per year) yields an APY of 1.01^365 - 1 = x36.8 gains. Still an unbelievable return (literally), but as we can see exponentially less than x48,481.

Wen Equalibrium?

When will the APR reach equilibrium in these pools? Under the current system: never. Every time CUB is minted there is literally nothing to do with it other than pump it back into one of the LP pools or the CUB den. Doesn't matter if you dump the CUB either, it will just be purchased by someone else and rolled into a farm no matter what. APR would continue to drop indefinitely if nothing further was built on the platform.


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Although there is this.

We are burning the deposits from 19 farms to destroy some of these Cubbies. However, this assumes that users will continue to make these deposits, which they obviously wouldn't if the yields were too low to justify the investment.

Regardless of all that, I find it quite impressive that even with just 4% deposit fees that we've somehow burned almost 10% of the circulating supply. Good job, CUB fam! Considering 20% of those funds don't even burn CUB (LEO rather) that's quite the achievement. Let the snowball roll.


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If we stop building on CUB it will devolve into a Ponzi scheme. Who is the value being extracted from? Anyone who holds CUB. An investment in CUB is an investment in speculation: we're either speculating that more legitimate value will be built or that enough users will enter the party late and hold our bags while we dump on them.


Anyone remember Drugwars?

I made some good money on that lovely Ponzi.


But I mean we're all here because obviously CUB is not a Ponzi. CUB gonna kick some ass and take names. I'm really not seeing any sort of competition on any level whatsoever. Truly.

Exchange Listings

There are a few people out there who see CUB as nothing but a greedy cash-grab. Why not just focus on the LEO token? Of course that would be completely ignoring the 40% price increase that we saw when CUB was launched. All of these systems synergize together to create more value.

An obvious way to get stake out of the farming contracts to increase price and reduce farming competition is to get an exchange listing. Perhaps if we are rocking it on BSC a Binance listing will be easy.

Other ways to add utility:

  • Layered farming
  • Lending dapp
  • Stable-coin minting

We also have to assume that there are a bunch of DeFi applications that haven't even been invented yet. Once they are, we can port them to CUB and add even more functionality.


Weren't we talking about APY?

Yep, and the way to increase APY and make it so CUB can employ compounded gains is to increase the number of coins we burn and have more options for where the money can go (contracts, exchanges, and the like).

It should be obvious that if we burn as many coins as we are minting, that's an effective inflation of 0%, but the farms will still be generating massive value. Something to think about.

Even more mind-blowing, APY doesn't take into account that CUB is not a stable asset. APY is only showing us how much more CUB we'll have in a year, not how much more value we have in a year. If the value of CUB increases in a year, we'd have even more gainz.

Conclusion

Albert Einstein reportedly said it. “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.”

I remember in grade-school we were taught about compound interest and how crazy the exponential numbers get. You know what they didn't teach us? That all that money and value was going siphoned to the central banks via infinite money printing. Fun stuff.

With crypto, we can actually start capturing the yields that the central banks have been hiding from us for hundreds of years. Disruption is coming to a financial system near you. Are you ready for it?

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I am pretty heavily in on Cub, still unsure what is to come, yet I keep rolling more and more in...

do I have a problem?

Come back to this comment after Hive goes x100 and ask yourself the same question.

If hive goes x100 creating an account would cost $120 and it would require well over $600 for someone to have the RC to interact on the blockchain. Goodbye mass onboarding?

Hive going up is fine but let's not get greedy let's get everyone a chance for our true value to the world "true ownership" of content. There are other coins out there that can flip the wealth distribution on its head.

Isn’t account creation fee a parameter that witnesses can change to lower as price goes up?

it is indeed flexible based on a witness paramater so yes that could go down and RC transaction cost is also controllable so with that maybe people wouldn't have to delegate 10-15HP if the price went that high ... so yes these numbers aren't exact. However the point still remains that what our main product is for the world is content with true ownership... that's more valuable position to be in.
Reward pools will come and go and speculators will make prices rise and fall however blockchain focused on user owned content will stick around.

And let's not forget how the lamens think they can't afford Bitcoin as they do not know it fractions. We are truly special people who have been in this for a while but as far as massive onboarding, hive is better under 25$ so people think they can "afford" it. Our insulary mentality has hurt retention in the past but really, when you look at marketing: food, sex, being popular, getting a dog, those are the things people respond to.

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Mate this is great stuff, I saw those numbers and thought what? Are they paying us the Compound interest, why?

Then I realised. Because they're not a bank! Lol well done

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We are the bank.

Well I have yet to dip my proverbial toes into this system. Not going to sell Cub but I’m waiting to see how things shape out with rates/cub token price. I’m also observing your trades.

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My one trade was a garbage move born of greed.
I think I lost like $5k doing that.
But in the beginning I was farming like $2k a day, so it evens out.
I'm still farming $1k a day and been in the green most of the time.

Being in the LP hedges very well against losses and has the highest farm.
Somewhat surprised token price isn't going up with 2.87% APR a day.

I don't understand why people claim it's a ponzi. No yield farm is a ponzi. the goal is to get the highest amount of liquidity possible in order to generate the highest trading fees.

There is a fact: liquidity attracts liquidity. Therefore adding incentive to LPs is a good way to get started.

People need to think about it this way. CUB - BUSD has a pool with massive liquidity. If no one trades CUB, price is fixed according to the ratio.

Then there is another pool with lots of liquidity, CUB - BNB. Again, in a world where no one trades, nothing happens.

However, we know BNB is volatile, basically like all cryptos. As BNB's price moves on exchanges, you automatically get an arbitrage opportunity through cub. For instance, if BNB goes up in price, while the ratio in the CUB - BNB pool remains the same, then CUB becomes valued higher in that pool then in the CUB - BUSD pool.

Arbitrageurs can immediately buy CUB using the CUB - BUSD pool and then sell CUB for BNB in the CUB - BNB pool. If they sell the BNB for BUSD, they will end up with more BUSD then they started with, completing the arbitrage.

Meanwhile those trades generate fees for liquidity providers. The higher the liquidity in the CUB pools, the more money is needed to arbitrage the prices. Therefore, more fees.

I don't see how this can be qualified of a ponzi. Or any yield farm for that matter. It is very speculative, yes, because people chase the incentive yield and not the trading fees. But at the core of the yield farming business, there are fundamentals, something everybody tends to forget.

Nothing you've said here couldn't be applied to an actual Ponzi.
Ponzi schemes can be very convincing.
Much more convincing than the rational you've given.
They are designed to be convincing.

Plain and simple: it's a Ponzi because it's unsustainable and those who got in first make money and those who enter late get their money transferred to the people who got in early. Plenty of people out there called Bitcoin a Ponzi, and they still do.

As it stands now, this entire project is centralized, and the network it sits on is centralized. It's double centralized with multiple attack vectors. Any Bitcoin maximalist would look at these tokenomics and claim this was a Ponzi. Because from Bitcoin's perspective: it totally is. There is no security here. Even the BSC farmers know it: and they still farm BSC. It's risky and you have to trust the dev team: A LOT. Rug-pulls & scams everywhere.

The only reason why things like this can exist is because Bitcoin exists. Bitcoin provides the ultimate security that allows other projects to branch out: getting riskier and more centralized for a potentially bigger risk/reward.

A new scam is launched every day.

No one should wonder why people would call CUB a Ponzi before proving itself.
Go farm some random tokens on BSC and you'll get it.
CUB is a random token to these people.
The fact that we trust CUB is not the standard: it is niche thinking based on trust/branding.

A true ponzi has 0 fundamentals or activity going on. It just finds new invstors to get capital from and pays the old investors. With yield farming there are trading fees coming in to the system, which means the pie grows.

And ponzi schemes have nothing to do with centralization. You could have a completely decentralized ponzi scheme, as long as the protocol is set up in the correct manner.

No such thing as a decentralized pyramid, friend.
Decentralization is built on flat architecture.

With yield farming there are trading fees coming in to the system, which means the pie grows.

First of all, over the next year CUB will have 1000% inflation and these trading fees you're mentioning are 0.17%.
A total drop in the bucket that means nothing to anyone.

There are dozens of these Defi Protocols that are legit scams.
Employing your logic all these obvious scams are actually not scams.
The logic itself is flawed.

The only way for CUB to not be a scam is if it receives constant development and becomes more sustainable.
Otherwise just stick to Bitcoin.

No such thing as a decentralized pyramid, friend. Decentralization is built on flat architecture.

Wrong. Decentralized only means there isn't a central authority. You could have a flat structure at the top with many participants but then each participant has a pyramid below him. Don't know if I explained that well.

A federated system is not flat, but is decentralized. Any PoS or dPoS crypto with governance is not flat, but is decentralized. For ex the voting system on hive. Your vote counts more than mine, doesn't mean there is a centralized entity deciding you matter more than me. Just means you got a larger stake in the decentralized protocol.

Completely flat structures are the most decentralized. But it doesn't mean that other structures are centralized.

fees you're mentioning are 0.17%.

0.17% on trading volume though. BTW, the volume on every pool should be counted, not just CUB . Yesterday we saw that CUB did 600k in volume. With other pools it should be more than a million USD. Now, imagine that a farm manages to get a volume equal to the market cap of the farm token everyday. In CUB's case, that's 3 million USD or so a day. Using only a 0.17% fee and compounding this means that 85% of the farm token's marketcap will be generated from fees alone in a year. That's not insignificant at all.

Let's be conservative and assume that all of CUB pools together do only a million USD in volume everyday. That will allow earnings 23% of CUB's marketcap in a year. Which ponzi generates a return on equity of 23%? None, they all generate exactly 0%.

This revenue from fees attract liquidity providers which ends up burning CUB through the 4% fee. So a yield farm token captures significant value from trading fees.

There are dozens of these Defi Protocols that are legit scams.

I agree, but only because they will remove liquidity they initially promised they would provide, or because they promise to deliver on some developments which they never intended to really work on. That's a scam, yes, but still not a ponzi. Because even though they scammed people into a project they don't work on, the project still generates money from fees. It's still a scam though because the performance will be underwhelming compared to investor expectations, based on lies by the developers.

The only way for CUB to not be a scam is if it receives constant development and becomes more sustainable.

I agree. Because Leo promised to deliver on that, and we all expect them to. If they do nothing, they would be a scam, but not a ponzi. Since we already are earning from trading fees.

I think in the end it comes down to a debate about definition. A scam is not necessarily a ponzi. A ponzi is a particular kind of scam that promises returns on money, but never even tries to generate returns and instead pays old debt with new debt.

Are you ready for it?

Ready!
Positive and
Operant!

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I was thinking they are the same
thanks for the explanation

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Awesome. I Love Compounding... this is why I am in the Den.

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More info why you see this.

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agree and the compound is key in that game. I don't think it will end up in a Ponzi.

Would mean, buy-in price doesn't matter that much long term. I buy-in on a higher price too, but I'm happy with it :)

I see it as the first step to more. Cub will be the Leo value token on BSC. Not bad IMO.

BTw, now are more then 90k cub burned :)

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I loved getting a view of some of the math for how these defi products work... I'm just getting around to studying a bit

I find confusing to understand the difference of yield in farms vs dens. Let's say CUB den has the highest APY from all the dens but is about 3x smaller than CUB-BUSD farm. In both instances we earn CUB. I understand impermanent loss concept somewhat that if the price moves to either direction, you lose some percentage of your gain.

Let's just say price of CUB goes to 30 USD some day. Until that scenario, is it better to be in the farm or in the den? In other words, would one earn more CUB being in the farm or in the den if the price spikes?

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Truly magnificent time we're in! Thanks for the morning read!

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Great article. I really liked the visual comparison of compound interest with an avalanche, which with each new meter becomes more and more.

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Showing the formula for APY helps to figure out it's magnitude!

Yeah now all the money is siphoning back to us!