XP Concentrated Yield
Concentrated yield operates through a simple premise:
Yield from a whole concentrated to a minority results in silly numbers.
This is the logic through which yield from the support is focused on XP-ETH Magnifiers.
Core Logic
The Support
Assume the support holds yield-bearing tokens with a 20% average APR.
XP
Assume XP's market capitalization is at parity with the value of the support.
XP will have a variable distribution between spot, engagement, and magnification.
XP-ETH
If we assume the support's rewards is deployed to the XP-ETH, we get:
Where:
Support APR = estimated annual yield
Support Value = value of the support deployed to support XP-ETH
XP:Support Ratio = ratio between XP market capitalization and Support Value
Magnification Ratio = % of XP supply which is magnified multiplied by 2
Observations
The above relationship allows for some very interesting observations.
Observation 1: Yield is Concentrated
Taking a support APR of 20%, XP:Support parity, and a magnification ratio of 8%, XP-ETH APR can be assumed to be 250%.
Concentrated yield allows a modest support APR to be made exponentially more powerful.
Observation 2: Fundamentals are relevant
Assume all parameters remain equal but support APR increase to 30%. XP-ETH APR is now 375%.
A modest improvement in actual fundamentals (proxied by support APR) results in an exponential increase in fundamentals (proxied by XP-ETH APY).
Observation 3: 'Fundamentals' are relevant
Assume all parameters remain equal to Observation 2 but the XP:Support Ratio has fallen to 50%. While an equivalent XP-ETH position will have declined by 30% (accounting for impermanent loss), XP-ETH APR is now 535.7%.
A decline in perceived fundamentals (proxied by XP:Support Parity) results in an actual increase in fundamentals (proxied by XP-ETH APY).
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