Illuvium Unannounced APY Update Oct 12, 2021

Illuvium Unannounced APY Update Oct 12, 2021

By Deraji | ILVFi | 13 Oct 2021


Today, between 12:00 PM and 4:00 PM UTC, an update to the APY calculation was rolled out to the Illuvium staking dashboard for both core pools.  Due to this update, the listed APY dropped from about 490% to 392% in the SLP, and 62% to 50% in the ILV pool.  No warning or indication was given that this change was occurring.  The staking channel for much of the day was filled with concerned people wondering what happened to their APY.  I started tracking my reward compared to previous days, and after a few hours, I confirmed that there was no appreciable change relative to my expectation, meaning this was not a contract issue, but rather a dashboard change.

At a little after 10 PM UTC, Kieran issued the following announcement.

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Here’s basically what happened.  For as long as I’ve actively been tracking the pool APY and growth (since late August), APY was calculated without consideration of the fortnightly decrease in rewards.  So, this UI issue had been in place since at least late August.  You can read more about my assessment (and complaints) about how APY had been calculated here, and understand more of the tokenomics of yield farming here.

HELP WANTED: APY CALCULATIONS

I’ll admit, I’ve been working with the new numbers for several hours, and even thinking that I understand the changes that Kieran indicated, I can’t get my number to match the current APY.  I will continue to work on this, though if anyone else would like to assist or has the updated formulas, please let me know.  Doing the math how I would expect APY to be calculated using the given information, I estimate the current APY to be 362% (versus the listed 392%) for the SLP, and 43% (versus 50%) for the ILV.  

THE NEW FORMULA

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What changed?

As I mentioned previously, rewards issued decrease by 3% every two weeks, and this was neglected from calculations for at least a month and a half.  APY became more a “speedometer” of rewards per day versus a realistic estimate of the future value.  Whatever change was implemented now includes some level of reduction, though it’s unclear to me how this calculation is done, as simply applying a 3% reduction in rewards generates a LOWER number than that shown on the Illuvium dashboard, meaning there is likely some further factor that I’m not considering.

What hasn’t changed?  What’s still not known?

First, the rewards issued hasn’t changed!  The same relative rate you were earning yesterday at 100% APY higher in the SLP is the same rate your Aearning today.  Take a deep breath!  Relax!

As for other things that didn’t change, the future price of ILV and the future growth rates for both pools remain unknown.  I have highlighted these as the biggest unknowns for some time in predicting future value, which is really the intent of APY.  As more people join the pools and as ILV rewards are claimed and added to the ILV pool, the number of expected rewards for each staker decrease.  This is NOT reflected in the new APY update.

Secondly, APY remains variable.  People incorrectly presume that upon locking their tokens, that they will receive a fixed APY over the duration of their lock.  This is not correct, and APY remains a variable as people enter and exit the pools. 

Lastly, compounding is NOT (or at least should not be) considered in the APY.  As compounding ILV rewards requires an active claiming action (and transaction fee), there is no way to include this in the APY calculation since each person will claim on a different frequency, and therefore each person will have a different value from compounding.  There is also potential to claim sILV, which is immediately available and does not compound.

What’s the impact of this?

Aside from the mild general outrage in the Staking Discord channel today, overall, this change is likely to be positive for current stakers.  You know I’m no fan of APY, but this remains the most visible representation of staking rewards future performance.  At this time, it’s at least slightly more representative of expected return, while still neglecting the unknowns of pool growth and ILV value.  Hopefully, this will prevent people from doing quick math, taking their investment and simply multiplying by the APY and predicting this as their future value.  This erroneous calculation neglected both pool volume growth along with the fortnightly decreasing rewards.  However, as I mentioned above, my analysis this afternoon shows that the APY is still too high even considering the 3% reductions.  

The second element that will aid current participants is that future stakers will see a lower APY, and perhaps reconsider the value of joining the Illuvium staking pools.  The fewer people that join, the higher the current participant’s rewards will be.  Overall, this is counter to the idea of the DAO, as I’m a proponent of adding as many engaged members of varied investment to effectively decentralize authority over time.  That said, I’m also obviously a fan of helping people be informed on their investment, so today is at least a step in the right direction.

What about my calculators & tracker?

If you’ve been reading my blog for the past two months, no doubt you’ve used mine or Lelahel’s calculator to estimate your staking rewards.  Given Lelahel’s model didn’t use APY, the calculator remains valid with no necessary updates.  The above two unknowns are still true, and expected value over time will vary significantly by pool growth rates (number of people entering/exiting the pools), and the future value of ILV.  Both of these were a user input in our calculator dashboards.  Please feel free to continue using the staking calculator here and video guides to assist in your staking journey.

I also update a daily estimated rewards dashboard here, tracking the number of issued and claimed rewards, and the number of staked tokens in each pool.  The only issue with this dashboard is that ongoing, the required pool weighting factor will not be automatic.  I will validate the results with my own rewards experience and occasionally conduct an assessment of the average token weight based on blockchain data, but it won’t be quite as accurate as before this update until I determine the new formula.  Apologies for any inconvenience, but hey, my tools are free and you get what you pay for.

I hope this helped clarify what happened today with the Illuvium core pool APY, and check out my dashboard to get a better reflection of what really changed in terms of expected daily rewards.  In fact, SLP rewards actually increased today as people exited the pool, though a large number of ILV were claimed yesterday dropping the ILV pool rates.  If you have any suggestions or have solved the new APY equation, please reach out to me on discord, Deraji#0798, and thanks as always for reading.

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Deraji
Deraji

Crypto curious thinker, amateur economist, geriatric millennial gamer passionate about Illuvium. Happy to share my economic and financial assessment of this unique blockchain NFT Play-to-Earn project. patreon.com/ilvfi


ILVFi
ILVFi

ILVFI focuses on the upcoming P2E game, Illuvium, the first proposed AAA-quality video game based on blockchain technology and NFT ownership. We'll focus on both the game play, as well as the in-game and ILV governance token economics.

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