Where the yield comes from
A vault earns trading fees from its pool, or on some exchanges a reward token. Adding those earnings back in is what turns the APR into a higher APY.
Trading fees
Every trade in a pool pays a fee: a fixed percentage of the trade. Each pool has its own rate, shown next to the vault's name as its fee tier, such as 0.3%.
The fees are shared by everyone who supplies the pool at the current price, by how much each one supplies. A vault only takes part while the price is inside its range (see Price ranges).
For example, say a pool trades $1 million a day and its fee tier is 0.3%. That's $3,000 in fees that day. A vault that supplies 1% of what's in the pool at the current price earns about $30 of it.
So a vault earns more when:
- more is traded in its pool;
- the pool's fee tier is higher;
- it supplies a bigger share of the pool at the current price. A narrower range does that with the same money.
Reward tokens
Some exchanges also pay a reward token, to attract money to their pools.
On up33, a vault can stake its position. A staked vault earns UP, up33's reward token, instead of the pool's trading fees. An unstaked vault earns the trading fees. The agent can switch a vault between the two, at most once an hour.
The vault doesn't keep its UP. At each harvest, it sells the UP for one of its own tokens and adds that back in, so you never have to do anything with it. What the rewards are worth depends on UP's price when they're sold. Harvesting explains how the sale works.
From APR to APY
APR is the yearly rate a vault earns without adding its earnings back in. APY is the rate with the earnings added back in, so they earn too.
The app works out the APY as if the earnings were added back once a day. For example, an APR of 73.7% is 0.202% a day. Added back every day, that grows to 109% over a year.
The higher the rate, the bigger the difference. At 10% APR, adding earnings back daily gives 10.5% APY. At 73.7%, it gives 109%.
In practice, a vault adds its earnings back at each harvest. That can be more or less often than once a day (see When harvests happen).
How the APY is measured
The APY shows what a vault has been earning lately. It isn't a forecast.
- Trading fees come from the last seven days of trading in the pool, worked out for the vault's own range and size.
- Rewards come from the pool's current reward rate and UP's current price.
- Out of range, it's zero. While the price is outside the vault's range, the vault earns nothing, and the app shows 0%.
- Before Aurum's fee. The APY doesn't take off the 10% performance fee, so what you keep is about 10% less. See Fees.
Below the APY, the vault's page also shows its Realized APY: what harvests actually paid out over the last 30 days, compared with the vault's average value. It appears once a vault has three days of harvests behind it.
Why the APY changes
- Trading goes up and down. Weekends, news and new tokens all change how much is traded.
- Rewards change. The amount of UP paid to a pool can change, and UP's price moves.
- More money joins the pool. Fees and rewards are shared by everyone who supplies the pool at the current price. When others add money there, everyone's share gets smaller, the vault's included.
- The price leaves the range. The vault then earns nothing until the price comes back, or the range moves.