Where is Swop.fi pools’ high APY coming from?

In this article, we’ll explain how Swop.fi pools’ annual percentage yield (APY) is formed and what factors have an impact on it.

On the information page https://swop.fi/info, you can view the annual percentage yield (APY) for each liquidity pool. APY is calculated dynamically, based on current stats. Let’s see what it consists of.

SWOP APY

SWOP APY is an income from SWOP token farming. The farming reward is the most substantial component of liquidity providers’ total income. Please, note that rewards in SWOP tokens are only paid to those liquidity providers who staked their share tokens in the section Investments → Farming.

The farming reward in SWOP tokens is added every minute. It is distributed between liquidity pools in proportion to their weight and, subsequently, between a pool’s liquidity providers in proportion to their share of staked tokens. You can read more on the distribution of the farming reward in our article on the SWOP token launch.

The current SWOP APY is calculated as follows:

In the first year since the launch of the SWOP token, the total farming reward for all pools will be 1 mln SWOP. An individual pool’s annual farming reward is calculated under this formula:

Thus, the APY of all pools directly depends on SWOP’s price. In turn, SWOP’s price is supported by swap fees in all Swop.fi pools. In addition, SWOP has a value as a governance token for the service’s key parameters.

The bigger a pool’s weight, the higher its SWOP APY. Meanwhile, the SWOP APY is in inverse ratio to a pool’s total liquidity’s current value, or, more precisely, to its part, which corresponds to the share tokens in farming. Therefore, the SWOP APY of two pools of the same weight could differ: the lower a pool’s total liquidity’s value, the higher return on each dollar provided to the pool.

Example. If the total value of a pool’s liquidity is $3 mln, 96% of all share tokens are in farming, the pool’s weight is 18% and SWOP’s current price is $40, the pool’s projected APY will be:

Total APY

In addition to the farming reward, liquidity providers’ income includes:

• LP Fees — 60% of accumulated swap fees stay in the pool, and this amount increases upon each swap transaction. The more swaps in a pool, the higher its liquidity providers’ income. However, in stablecoin pools, the swap fee is just 0.05% as opposed to 0.3%. Therefore, liquidity providers’ reward is higher in volatile asset pools.
• Staking Income is paid for the staking of Neutrino assets. Each pool automatically stakes almost all of its USDN, NSBT or EURN to the Neutrino smart contract, and staking payments are added to the pools’ liquidity on a daily basis.

A pool’s total APY is a sliding window calculation. You can switch between a 24 hour and 7 day period.

Based on a 24 hour period:

Based on a 7 day period:

On individual pools’ information pages, the APY based on a 24 hour period is displayed.

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