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Fix #1380: DF: APYs page should discuss how tx costs affect yield #1381

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Nov 21, 2023
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Fix #1380: DF: APYs page should discuss how tx costs affect yield #1381

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20 changes: 14 additions & 6 deletions data-farming/apys.md
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Expand Up @@ -21,17 +21,25 @@ You can do your own APY estimations. In Passive DF, APY is highly dependent on t

### Definition of Yield, WPY, APY

A **yield** is the relative gain in value compared to the amount you started with. Specifically:
A **yield** is the relative gain in value compared to the amount you started with, minus costs. Specifically:

`yield = (start amount + gained amount) / (start amount) - 1.0`
`yield = (start amount + gained amount - costs) / (start amount) - 1.0`

For example, if you start with 1000 OCEAN and earn 5 OCEAN:
For example, if you start with 1000 OCEAN, have 6 OCEAN gross revenue, and 1 OCEAN costs (net 5 OCEAN):

`yield = (1000 + 5) / (1000) - 1.0 = 0.005`
`yield = (1000 + 6 - 1) / (1000) - 1.0 = 0.005`

We can express yield as a percentage simply by multiplying by 100 (%). For example, yield of `0.005` in percentage is `0.005 * 100% = 0.5%`.

The yield for one week is **Weekly Percentage Yield**, or **WPY**. For example, if you started with 1000 OCEAN and earned 5 OCEAN from DF, in one week, then your WPY = 0.005 = 0.5%.
The yield for one week is **Weekly Percentage Yield**, or **WPY**. For example, if you started with 1000 OCEAN and netted 5 OCEAN from DF, in one week, then your WPY = 0.005 = 0.5%.

The yield for one year is **Annual Percentage Yield**, or **APY**. APY can be estimated from WPYs. Assuming no compounding, `APY = WPY*52`. We drill deeper in the [guide to estimate APYs](apys-guide.md).
The yield for one year is **Annual Percentage Yield**, or **APY**. APY can be estimated from WPYs. Assuming no compounding, `APY = WPY*52`.

**Costs** include:
- Gas fees for transactions (txs) on the various chains. Eg veOCEAN, passive DF rewards, and Volume DF rewards are on Ethereum mainnet. Predictoor DF is on Sapphire mainnet.
- Txs include: locking OCEAN, claiming passive rewards, claiming active rewards, and withdrawing rewards.
- Costs should not be under-estimated. Eg if you're only doing Passive DF, and you lock a small amount of OCEAN for a short time, costs may exceed your gross income.
- To compound returns, these txs need to be repeated. The ideal frequency to compound rate is whatever maximizes your yield - which depends on how much OCEAN you've locked, tx fees, etc.

The **[guide to estimate APYs](apys-guide.md)** drills deeper into estimating APYs.