Printer Financial — DeFi 101.2: How do we calculate APR in Tomb forks?
Welcome to our DeFi 101 series! We hope this series will provide answers to common DeFi questions, and arm you with information to perform better research and avoid getting rekt. In the previous article we discussed the basics of APR and APY, including what they are, and how they’re calculated. Now let’s dive into the dynamic nature of APR in DeFi, detailing the variables that define APR, and how to calculate it across common DeFi protocols, beginning with Tomb and Tomb forks.
Have you ever invested in a new Tomb fork paying out 30% daily, and the next day it dropped to 10%, then 5%, and so on, for no apparent reason? Or maybe you’ve simply never understood where those APRs come from in general? Here, we investigate the mechanics of Tomb forks, detailing where those rewards actually come from and how to quickly calculate those APRs.
The basics: Tomb forks have two tokens that emit rewards: the “peg” and the “share”. Peg token rewards are provided to those staking share tokens (when the peg token value is above peg), and share token rewards are provided to those staking peg-native or share-native LPs (regardless of whether or not the peg value is above peg).
When staking share tokens, the peg token rewards are given at the end of each 6 hour epoch. The peg token reward emissions are determined by the current circulating supply of the peg token. While the expansion rates can be different depending on what the devs set in the contracts, here is an example from an FTM Tomb fork.
When staking LP tokens, share token rewards are given on a continuous basis, proportional to your share of the total LP. The share token reward emissions can be different depending on what the devs set in the contracts, but a common ratio is a 60/40 split of share token rewards between the peg-native or share-native LPs, respectively.
How to calculate APR in Tomb Forks: To calculate the daily rate of return (APR/365), we first determine the emission rate of the pool (LPs or share staking) and our share of the pool. This will tell us how many reward tokens we get for a given deposit. For example, let’s say we deposit $1000 into a liquidity pool where the total value of all deposits is $100000, meaning we own 1% of the pool. The total emissions from the pool is 100000 tokens per day, so we would collect 1% of those tokens, which is 1000 tokens per day. Then, we calculate the fiat price of those tokens and divide the rewards value by the deposit value to get our daily rate. For example, if our reward tokens were worth a total of $100 ($0.10 per token), and our deposit was $1000, the daily rate would be $100/$1000 (10%), and the APR would 10% * 365, or 3650%.
Always be sure to read the docs to best understand the project goals, exact emission rates, and discover any additional nuances that may be specific to given project, such as the percentage of rewards given to users versus other allocations (dev and investment fund, for example).
Test time! Now let’s run through a couple real-world examples, using Printer Financial as the example protocol. At Printer Financial, we are a Tomb “spork”, and while we use the basic Tomb fork liquidity generation model outlined above, we have several important differences including (1) no peg, (2) no bonds, (3) no lockup periods, (4) additional staking pools, and (4) fast, cheap, and reliable cross-chain bridging! Below is a summary of the protocol rewards structure for reference:
First, let’s calculate the APR of The Printer. Here is the situation:
- You have 50 $INK staked
- There are 10000 total $INK staked
- The current circulating supply of $PAPER is 100000 (IMPORTANT: Use circulating supply as described in our docs. This is different from circulating supply displayed on the home page.)
- The current price of $PAPER is $0.60
- The current price of $INK is $15.00
First, we know from the docs that the total number of $PAPER tokens emitted per epoch is 2.5%, so when $PAPER circulating supply is 100000 we can calculate $PAPER emitted per epoch as 100000*2.5%, or 2500. Next, we calculate our share of the total $INK staked, which is 50/10000, or 0.5%. This means we will get 0.5% of the total reward of 2500 $PAPER tokens, which is 12.5 $PAPER token for this 6-hour epoch. Taken across a full 24-hour day, this would be 50 $PAPER tokens. Now, we convert these tokens into $ value, giving us $30.00 worth of $PAPER, and $750 worth of $INK. This means for every $750 of $INK staked, we earn $30 of $PAPER per day, and if we divide the reward by the deposit and convert to a percent, we get 4.0% daily return. Finally, multiply that by 365 (days per year) to get the annual percentage rate (APR) of 1460% (which some degens on discord told me “is just okay”).
Next, let’s do the same exercise for the $PAPER-native LP. Here’s the situation:
- You have $1000 of $PAPER-native LP tokens staked
- The total value of the $PAPER-native LP is $100000
- The current price of $PAPER is $0.60
- The current price of $INK is $15.00
We know from the docs that 80000 $INK are emitted across the staking pools linearly throughout one calendar year. This means 80000/365, or 219 $INK are emitted per day. We also know that the $PAPER-native LP captures 35% of total $INK emissions, meaning the total rewards in that pool are 219*0.35, or 76.7 $INK per day. Next, we calculate our share of the pool as 1.0% ($1000/$100000). This means we will collect 1.0% of the total rewards, which is 76.7*0.01, or 0.767 $INK per day. Now, we convert the $INK into $ value, giving us $11.50, and if we divide that by the deposit amount of $1000, we get 1.15% daily return. Finally, multiply that by 365 (days per year) to get the annual percentage rate (APR) of 420% (Chad approves).
So what causes the APRS to fluctuate so wildly on some Tomb forks? The main reason is the value of the tokens themselves. For example, in the LP example above, perform the calculation again with the value of $INK at 10X, or even 50X higher, and you’ll find that the APR rises by the same factor. Early on, token prices can be extremely volatile due to low supply and liquidity, meaning large changes in value over a very short period of time are the norm. It’s important to consider these variables, as well as the other factors (including real-world utility) at play when analyzing the sustainability of a given APR and the project as a whole. We hope you found this article helpful in understanding the underlying mechanisms of Tomb forks and the Printer Financial spork, but if you have any questions about this or literally anything else, join our Discord and Telegram channels and we’ll help you out.
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