APY Calculation
Last updated
Last updated
ELPP measures Annual Percentage Yield (APY) based on changes in the pool’s collateralization ratio over time. This standardized metric helps users see how their investments might grow annually, assuming current trends continue.
Where:
Collₜ₀: Collateralization ratio at the starting point.
Collₜ₁: Collateralization ratio at the ending point.
T₀ and T₁: Timestamp values in days.
T₁ - T₀: Number of days between measurements.
Imagine you measure the pool’s performance over a 30-day period:
Starting Date T₀: January 1, 2023
Ending Date T₁: January 31, 2023
Collₜ₀: 1.000
Collₜ₁: 1.006
ΔT: T₁ - T₀ = 30 days
Plugging these values into the formula:
Hence, if the same growth persists for a year, the annualized return would be about 7.3%.
Historical Indicator: APY reflects past performance and doesn’t guarantee future returns.
Market Events: APY can vary significantly during periods of high volatility or extreme market conditions.
APY serves as a convenient measure of annualized returns, giving liquidity providers a clearer idea of potential growth within the ELPP.