Y Pool does not put all the money into the Swapper. Instead, some of the asset goes to other DeFi protocol to earn yield. For example, pool on Ethereum puts
10%
of asset into Swapper to supply liquidity needed by X swap; another pool on BSC puts
20%
of asset into Swapper; the other puts
20%
on Polygon as well. Meanwhile, rest of the asset of each pool goes to lending protocol such as AAVE.
What YOGA does is find the best percentage,
L
,that maximizes the profit earned outside of Y pool while still being able to afford the liquidity needed by X Swap. For example, if there's $100m in Y pool in total, Y Pool moves certain ratio of $100m, say $80m, to strategy that earns yield according to the YOGA, which finds out the the
L
basedon given parameters.
Let's have an example. First we need some assumptions such as:
Parameter
Description
Ethereum
BSC
Polygon
TVL
TVL of Y Pool
$5,000,000
$5,000,000
$5,000,000
R
Ratio of swapping out
80%
80%
80%
APY
Supply APY of USDT on lending platform
10.5%
5%
2%
C
Withdraw cost from lending platform
$20
$5
$1
S
Safe reserve ratio
10%
10%
10%
And
D
,daily trading volume in total, by reference of 24H volume of Anyswap Bridge, is $10,000,000. We can have
earning per day by YOGA if moving
L
of
TVL
to supply USDT on lending platform:
Earning=TVL⋅L⋅365APY
cost to withdraw supplied asset in lending platform back to pool supporting liquidity in one day would be:
TimesofRebalance=max(TVL⋅(1−L)D⋅[R−(1−R)],0)
Cost=max(TimesofRebalance⋅C,0)
By
R
it means every pool is not able to make ends meet. In this case, users are more likely to withdraw money from one chain instead of deposit so that XY Protocol would have to continuously put back liquidity. Thus we set
Pulling in all the numbers from table above, do the math and we have:
Ethereum
BSC
Polygon
Parameter
Ethereum
BSC
Polygon
L
88%
92%
94%
min(L,1−S)
88%
90%
90%
BonusAPY
7.79%
4.05%
1.70%
L
should never be greater than
1−S
.
We may earn more yield and get all the swap fee at the same time owing to YOGA, which leads us to the best way of utilizing asset. Note that it is the worst case of Bonus APY! Since we are being conservative in numbers and in fact the frequency of withdrawing from lending platform should be much lower. It is impossible for
R
to be greater than
50%
on all chains at the same time and volume should be separated to each chain accordingly. Therefore, the bonus APY would be a lot higher than results above.
If charging 0.1% of swap amount as fee, APY of collecting fee would be
10,000,000⋅0.1%=10,000
APYfee=5,000,000⋅310,000⋅365=24.3%
YOGA then brings at least
24.3%7.79%+4.05%+1.70%=55.7
% boost of APY compared to merely collecting fee for liquidity providers.