The Geyser distribution system has brought on a lot of questions about how rewards are paid out and how liquidity providers can calculate and extrapolate their potential ROI.
ICYMI: the WLEO liquidity pool pays out a liquidity incentive using daily snapshots. This model is based on the Geyser distribution model used by a number of DeFi projects and liquidity protocols.
Put simply, a Geyser model distributes the rewards pool more heavily toward liquidity providers who have provided liquidity early on and have not removed liquidity for long period of time. This incentivizes the users who post liquidity into the pool and leave it in for the long-term. The health of any liquidity pool is measured by its depth and sustainability.
One issue with Geyser models (like ours) is that the rewards are impossible to predict with pinpoint accuracy. The reason for this is that there are so many different variables at play. These variables are in a state of constant flux and thus, the rewards and APY % is also in a constant state of flux.
As of today, the 3rd Geyser snapshot occurred which means that we have 3 days of data to analyze and extrapolate potential yield.
In this post, I analyze the data after snapshot #1. Doing this analysis after just 1 snapshot gives a simple platform for understanding the fundamentals behind the Geyser model. My hope is that you read this post and build a foundational understanding of the variables at play. When we do other posts analyzing the yield and Geyser mechanics, you'll be able to recall what is said here and utilize it.
In a few days, we'll release another post analyzing the data after 7 days of snapshots which will give a better picture on the long-term variables and how they impact LPs positively and negatively.
While we've had the LP Geyser Simulation tool live for over a week, it is a simulation tool and doesn't reflect reality. In reality, there are so many different variables that a simulator simply can't predict with perfect accuracy. The goal of that simulator was to give a rough picture of what to expect.
Now that we have real-time data, the following analysis is based on actual payouts. The following data and payouts are the actual Day 1 distributions that these LPs are going to receive in the first Geyser distribution (in about 27 days).
While one could extrapolate based on these daily payouts alone (and probably do it with decent accuracy), the variables will cause the payouts to fluctuate either higher or lower depending on what happens in the pool. Later in this post, I'll describe the primary variables at play.
Above is a screenshot of how the Geyser distributions look on paper. Remember: these are the real figures for day 1 rewards. These LPs will earn these rewards and the following 29 days of distributions in the first round of geyser distributions in mid-December.
LP Stats: Day 1 Snapshot
Below you'll find the day 1 snapshot and payouts for liquidity providers in the WLEO - ETH Uniswap Pool. Unfortunately, Markdown isn't formatting this table well, so I haven't embedded it directly in this post. The following is a screenshot but I also recommend viewing the PDF version of this.
The PDF is especially helpful if you're searching for your own LP balance. Just do ctrl+f and then search for your ETH address.
Note: Team Liquidity is greyed out because it isn't eligible for the Geyser incentives pool
In the various shades of green, you'll find the yield and APY. Here's a quick explanation of each section:
- Provider Address - the ETH addresses of liquidity providers
- WLEO-ETH LP Token Balance - amount of LP tokens held by each LP
- % Share of Total LP Tokens - % ownership of the entire liquidity pool
- LP Position Value - value of their position at the time of snapshot
- Days in the Pool - # of days they've been in the pool (note: this is going to be 1 for all the LPs in this snapshot because it's the first one)
- Token Staking Time - represents to time they've been in the pool against the amount of tokens they hold (not all that important for viewing purposes but important for backend calculations)
- Time Factor - represents the individual's token staking time versus the global staking time. This is how amplified rewards based on the geyser system are calculated
- Geyser Yield (LEO) - this is the actual payout the user is going to receive from the first snapshot (calculated by multiplying their time factor against the daily rewards pool)
- APY - this simply takes the snapshot payout (which represents 1 day of rewards), divides it by their current LP positive value and then multiplies that number by 365 to extrapolate their annual percentage yield (APY)
- Fees APY - this represents the yield earned from the normal trading fees generated from the Uniswap liquidity pool (0.3% of each trade is held as a fee and distributed proportionally to every LP in the pool)
- Total APY - this simply adds the Geyser APY and the Fees APY together in order to show the total yield that an LP is receiving
- USD APY - this takes the total APY and multiplies it by the LP position value to display the U.S. Dollar value of rewards earned after 1 year at this rate of rewards
Why is this so complicated?
I thought this question was kinda funny to include. Yes, this does seem very complicated and some have asked why we don't stick to a simpler model of linear rewards so that everyone can reliably predict their LP distributions.
The reason is the same as we've outlined in this post and others: the goal of the Geyser model is to incentivize liquidity that enters the pool early and stays in for a long period of time. By having this distribution of rewards, we're incentivizing the best kind of LPs that exist: ones who believe deeply in the project and earn the best yield for proving that belief by providing long-term liquidity.
Why is each LP earning the same APY?
In the day 1 snapshot, each liquidity provider has obviously been in the pool for exactly 1 day. This means that the variables at play are all the same regardless of the individual LP. As we continue to share these reports, you'll see the APY start to shift as the long-term LPs earn a greater share of the pool and the LPs who either joined later or leave earlier earn less.
Is There a Minimum Required to Earn Geyser Rewards?
No there is no minimum. We do, however, recommend that you do a minimum of $100 if you're participating in the liquidity pool (that's $50 worth of ETH + $50 worth of WLEO).
The reason for this recommendation is that the fees will likely be ~$3-7 USD to become a liquidity provider. This would be 3-7% on $100 and any higher % would seem unreasonable IMO.
When and Where Will LPs Get Paid?
All liquidity providers get their Geyser distributions paid 1x per month. These rewards are defaulted to our HiveLink system which means that the Geyser will attempt to pay you in native LEO tokens via your Hive account - if it can link your Hive username to your ETH address.
If it cannot link your Hive username - either because you don't have one (because you're coming from Ethereum) or because you didn't wrap LEO before providing liquidity - then it will distribute your Geyser LP rewards as WLEO on the ETH blockchain.
Is it Too Late to Become an LP?
"It's not too late, no it's never too late."
You can become an LP at any time and start earning Geyser LP incentives on the next snapshot. As you'll see in the variables section and the above snapshot, the payouts lean heavily toward Liquidity Providers who have been in the pool longer relative to other users.
At first, a new liquidity provider will earn a much much lower APY % than other LPs. After a few snapshots, however, they'll notice their APY % start to rise as they become a more established provider in the pool.
Again, the goal is to incentivize people who pool early and leave their liquidity in the ecosystem. Becoming a long-term LP will always be a profitable move. The question is how long you leave your liquidity in the pool as the longer it's there, the higher your rewards will become.
Variables At Play
I mentioned that there are some primary variables at play here. As the liquidity pool fluctuates along these metrics, LPs will see their geyser rewards fluctuate as well. Sometimes there will be positive impacts on their ROI and sometimes there will be negative impacts on ROI.
For this reason, we continue to reiterate: the highest APY will be earned by those who provide liquidity early and don't remove it. This is the entire point of the Geyser ecosystem - incentivize the most beneficial type of liquidity: liquidity that pools early and doesn't leave for an extended period of time.
- Other LPs
- Total Liquidity Pooled
- Daily Trading Volume (Fees APY)
- WLEO/LEO Price
As other LPs enter/exit the pool, liquidity providers will see their rewards fluctuate. More LPs means more competition over a fixed rewards pool. Less LPs means less competition.
The other variable in that is how long the other LPs have been in the pool. Remember that "Time Factor" variable in the Geyser system? Time factor ranks your liquidity against the other LPs in the pool based on how long you've been an LP relative to them. The longer you've been an LP relative to others, the higher your Time Factor and therefore, the higher your rewards.
As the total liquidity pool increases, there is more competition for rewards. BUT - and it's a big but
t - more liquidity typically begets more trading volume which brings in more APY from trading fees. More trading volume typically attracts more liquidity and so on and so forth.
@khaleelkazi (I) wrote a post yesterday titled "Liquidity Black Hole Theory and How it Now Applies to WLEO" which outlines this phenomenon in detail. I highly recommend giving it a read if you're interested in how more liquidity actually benefits not only the entire ecosystem but you as an individual liquidity provider despite the increased competition over the rewards pool.
Follow an LP
I'm sure Mitch (@scaredycatguide) won't mind if I use him as an example here. Let's run through a quick breakdown of his rewards after the first snapshot:
Step 1). Copy his ETH addy
Step 2). Ctrl + F
Step 3). Paste His ETH Addy
Step 4). Count His $$
Just a quick breakdown summary of what The Cat man is earning:
- % ownership in the total liquidity pool: 2.39%
- Value of LP position: $8,348.25 USD
- Days in the pool: 1
- Time factor: 2.80%
- Geyser yield for day 1: 22.749 LEO
- Geyser yield APY: 22.88%
- Fees APY: 8.34%
- Total APY: 31.21%
- Extrapolated earnings after 1 year: $2,605.62 USD
So Cat man will earn $2,605.62 USD after 1 year of being an LP if all else stays equal. If more LPs enter the pool, he may see his LEO yield decrease but he will likely see the USD value of that yield outpace the drop in LEO tokens.
As the variables play out, there are a lot of different possible scenarios for the cat. He's entered the pool early and is unlikely to remove any liquidity for 1 year + which means that he's likely to earn an increasing APY over time as other early liquidity providers may bow out of the Geyser and increase the Cat's advantage.
It will be fun to see how these Geyser rewards fluctuate over time. I know this is quite a lot for everyone to take in which is why I've been working on a variety of posts to break it down from as many angles as possible.
In my opinion, this post is the clearest of them all since we can work with the real-time numbers and also use Mitch as our guinea pig.
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