How to calculate how much have you earned on the wNOT(wrapped Notcoin)/TON liquidity provision on STON.fi?
I’ve made a lot of content about DeFi Yield farming. In this article, I want to focus on the profit, that you can make on liquidity provision, or to be exact how you can calculate it.
Liquidity provision is a long-term financial strategy but with this liquidity pool results became obvious after the first 7 days. I’m talking about the wNOT-TON liquidity pool (more details about Notcoin trading on STON.fi).
TL;DR
The profit was +16.975% in 15 days.
I used AMM formula (x*y=k).
Numbers and calculations
I provided wNOT-TON to the liquidity pool on the 28th of March (I’ve got almost all of this liquidity through Getgems — STON.fi arbitrage trading).
Here is how my liquidity looks today.
Let’s calculate profit.
Unfortunately, it’s incorrect to just deduct the initial provided liquidity from the final amount of wNOT and TON.
Let’s use the AMM formula (x*y=k, x amount of TON, y amount of wNOT) for the entry point: 23.34 * 19 999 999 = 466 799 976.66.
Now let’s calculate how this liquidity will look with the new exchange ratio (if the reward for the liquidity provision had not been added to my liquidity).
- x amount of TON, y = x * 20 662657/30.89.
- k = x*x* 20 662 657/30.89 = 466 799 976.66.
- x = SQRT (466 799 976.66*30.89/20 662 657)=26.41.
- y = 26.41 * 20 662657/30.89 = 17 665 936.
Because of impermanent losses if there will be no profit from liquidity provision I will have 26.41 TON and 17 665 936 wNOT at this exchange ratio.
The profit out of the liquidity provision is 30.8931 TON — 26.41 TON=4.4831 TON and 20 662 657 wNOT — 17 665 936 wNOT = 2 996 721 wNOT. Or it is 4.4831*100%/26.41=16.975% in 15 days.
Why does this pool is so profitable?
Notcoin is on Hype. No one knows the fair price and lots of people trade it every day. More about the reasons for this huge Volume you can find out in this article — “Why Exchange Notcoin for Another Cryptocurrency and Is It Worth Doing?”
Liquidity providers share 0.7% of each trade. You’ll get 0.007*trade volume*your share in the liquidity pool after each trade, that’s why compound interest is appliable in this case.
Is it too late?
Sure no. I have no clue what will be fair price. While my liquidity is in the pool I’m buying all the way down and selling on the way up, in addition I get rewarded for the liquidity provision.
