What Is Yield Farming?
Yield farming, or liquidity mining, is a method of earning rewards as a result of providing tokens for liquidity.
For simplicity’s sake, farming can be likened to staking, but there are a few key differences between the two practices.
Farming is done by Liquidity Providers, who are users that lock their tokens in liquidity pools.
In turn, Liquidity Pools are smart contracts (Vaults), in which a certain number of tokens are located.
In exchange for locking in liquidity to a certain pool, providers receive rewards.
Rewards are paid out in the form of one or more tokens that can then also be deposited in other liquidity pools for users to get further rewards.
The total number of locked-in assets is displayed as the TVL (Total Value Locked), and the number of assets locked into a pool by a single provider is displayed as a Pool Share, which is expressed as a percentage of the TVL of a given pool.
Accordingly, the larger the Pool Share, the more lucrative farming will be for the user.
Liquidity pools in which providers deposit their tokens support the market. Thanks to them, token swaps and other operations are made possible. Liquidity providers earn a commission on all transactions (usually a .3% commission on the total transaction price, but the exact commission depends on the pool). Commissions are added to pools in real-time and distributed to providers proportionally to their Pool Shares. They can be claimed at any time and withdrawn along with the original liquidity provided.
In order to stimulate the provision of liquidity on FlatQube, a number of farming programs have been launched. Liquidity providers can deposit their LP tokens in the Farming Pool that corresponds to their token pair and receive additional rewards every second already as a farmer. The remuneration is distributed among all Farming Pool members in proportion to their share in Farming Pool.
Each Farming Pool on FlatQube has its own Farming Speed, which is the number of tokens that get constantly distributed to liquidity providers in proportion to their Pool Shares. Essentially, a Pool Share is the percentage you will receive of this number at any moment in time.
Rewards are constantly being calculated, and the Farming Speed for a pool can change.
To calculate the profitability of farming on FlatQube, the APR (annual percentage rate) is used.
One of the most important distinctions between farming and staking is the heightened risk inherent. First and foremost, we are referring to the risk of Impermanent loss.
Impermanent loss can occur as a result of price volatility for one or both of the tokens in a farming pool.
The higher the volatility is for one token relative to the other, the higher the chances will be of impermanent loss occurring.
From this, it stands to reason that the most stable form of earning in Farming Pools comes from the stablecoin pools.
We highly recommend that anyone looking to become a liquidity provider familiarize themselves with the risks of Impermamnet loss. This will help you make the most out of farming and prevent you from running into any unpleasant surprises.
There are also IL calculators that you can use to help in the decision-making process, like this one.
As previously mentioned, rewards for farming are accrued constantly, but they do not immediately become available for withdrawal. The distribution of rewards on FlatQube is done in accordance with a Vesting mechanism.
Vesting is a market oversupply management tool that was created as a result of increased TVL and farming speed. The essence of vesting is to reduce the pressure on the price of tokens and encourage more long-term investors.
Essentially, vesting on FlatQube is a formula for progressively unlocking a liquidity provider’s rewards over time.
Each farming pool has several parameters related directly to vesting (the values of these parameters can be found on the page of each pool):
Vesting Ratio, Vesting Period, Vesting end date.
And the rewards themselves are indicated as Unclaimed reward and Entitled reward.
We are going to break down what each of these terms means.
Vesting ratio is the percentage of the reward that will be sent to vesting, and Vesting period is the time frame during which vesting will take place.
Vesting end date is the date at which all rewards that have accumulated in vesting will be unlocked.
Entitled reward is a parameter that shows the number of tokens that are in vesting and not available for withdrawal (Claim) at the moment. These tokens are gradually unlocked, and when they become available to withdraw they will be shown in the Unclaimed reward column.
The accumulation of Unclaimed rewards from the amount locked in vesting (Entitled reward), begins immediately once they are received and ends once the Vesting period has expired.
For example, if the Vesting ratio is 100% and the Vesting period is 120 days, it means that 50% of all tokens received as rewards will be sent to the user over the course of 110 days (these tokens will be displayed in the Unclaimed reward section). The remaining tokens will be sent over the course of the next 130 days.
The rewards that are not yet available and that will be unlocked over the course of 120 days will be displayed in the Entitled reward section. Below we are going to take a look at how this works.
In layman’s terms, every day 1/120th of the rewards that have accumulated in Entitled reward are sent to Unclaimed reward. Accordingly, every second 1/(60*60*24*120) of the Entitled reward is unlocked.
It is important to note that the share of unlocked funds is calculated from the current Entitled reward balance while your liquidity is locked in the farming pool, but once you decide to withdraw your LP tokens, the remaining Entitled reward balance will be unlocked in even shares every second. Put simply, the balance of the Entitled reward will be transferred to the Unclaimed reward in equal shares within 120 days from the moment the LP tokens are withdrawn from the farming pool.
We highlight that the Vesting end date will constantly change until you withdraw your liquidity from a farming pool.
This happens because rewards are received every second and instantly blocked and then sent to vesting in the form of Entitled rewards for future unlocking evenly over the next 120 days.
When LP tokens are withdrawn from a farming pool, the Entitled reward will continue to be unblocked and sent to your Unclaimed reward over the course of 120 days and the number of your Entitled Reward will not increase.
Example 1: you have LP tokens in farming and you receive 1 wEVER every second. Your total reward after the first second is 1 wEVER, after the 2nd second is 2 wEVER, after the 3rd second is 3 wEVER, and so on.
Accordingly, your Unclaimed reward, which gets unlocked progressively, after the 2nd second is equal to the following:
(1) after the 2nd second
(2) after the 3rd second
(3) after the 4th second
and the total Unclaimed reward, after the 4th second is equal to (1) + (2) + (3)
Let’s stay you have withdrawn your tokens from a farming pool and at that moment you had an Entitled reward of 10 wEVER. From the moment you withdrew your funds, your Entitled reward will no longer increase. This means that every second you will receive 10/(60*60*24*120) wEVER and you will receive the remaining reward over the course of 120 days.
Here is a graph to illustrate:
Vesting graph displaying a Vesting ratio of 100% and a Vesting period of 120 days
This is a vesting graph with a Vesting ratio of 100% and a Vesting period of 120 days. The graph displays a Vesting Period of 120 days — after 120 days, your LP tokens are withdrawn, and the Entitled reward earned during this time continues to be unlocked and transferred to the Unclaimed reward.
At all times we have the following 2 parameters:
1. Entitled reward — total of locked rewards
2. Unclaimed reward — total of unlocked rewards
To calculate the Unclaimed we have a few additional parameters:
- now (the current time)
- lCT — lastClaimTime (time of the last claim)
- vP- vestingPeriod
- pVI — partlyVestedInterval (partial vesting period)
- fVI — fullVestedInterval (entire vesting period)
Depending on how much time has passed since the last Claim, there are 2 scenarios for when more or less than the vesting period has passed.
If less has passed, the calculations must be made according to F1.
If more has passed, you need to calculate the required value using the F2 system. In fact, all you have to do is simply cut off part of the amount that was completely unlocked, and for the remaining, use the function from F1.