How veDFX can boost DFX rewards for Liquidity Providers
TL;DR: A user receives boost based off of how much they provide to an LP, how much the total LP is, the amount of veDFX you have and the total amount of veDFX in circulation. 🧠
Holding veDFX gives users more weight when collecting certain yield rewards. A big majority of the rewards that are distributed directly through the protocol are eligible for veDFX boosts.
A user veDFX boost does not increase the overall emission of rewards. The boost is an additive boost that is added to each farmer's yield proportional to their veDFX balance.
The DFX staking contract model (also known as a Gauge) comes from Curve which has a very similar boosting system. Basically, this staking contract considers that an address holding veDFX is providing more liquidity than it really is.
In a given gauge, owning veDFX increases a liquidity provider's share of the pool thus increasing the rewards received. As usual, liquidity providers holding no veDFX are considered as providing 100% of their liquidity. If an address owns enough veDFX, the contract can consider that it brings up to 250% its original liquidity, or a 2.5x boost compared to the original 100%.
Then, this 2.5x multiplier in liquidity provided translates into a boost on rewards depending on the total liquidity provided in the pool and how it is considered by the boost calculator. The formula to calculate earning weight is below: Earning weight = ((user_lpt × 40) + ((pool_total_lpt × user_vedfx) / total_vedfx) × 60) / user_lpt If a liquidity provider holds no veDFX, they will have an earning weight of 40, or in other words, the contract considers them as providing 100% of their liquidity. On the other hand, if a liquidity provider does hold veDFX, they can have an earning weight between 40 → 100, depending on how much veDFX they hold (e.g., a liquidity provider with an earning weight of 80 is considered by the contract as providing 2x of what their actual liquidity is).
Note:As the quantity of veDFX owned by liquidity providers on a pool increases, the amount of rewards received by non-veDFX holders decreases, as they represent a smaller share of the liquidity.
Now that we understand how veDFX holders get a boost on capital compared to non-holders, let’s look at how this translates into an actual boost on rewards received.
Example 1: One holder of veDFX with a big share of the pool:
- Wallet A and B are providing 100 of liquidity each in pool P.
- They are receiving 50% of the rewards each.
Now, let’s say that A owns the total supply of veDFX.
- The boost calculator now considers that A bringsof liquidity to the pool.
- Wallet A now ownsof the pool, and wallet B owns 28.5%.
- Wallet A rewards multiplier is at 1.43x (from 50% to 71.5%).
Example 2: Two holders of veDFX, with very different shares of the pool.
- Now say that wallet A provides 100 and wallet B provides 9900.
- If none of them hold veDFX, they are respectively earning 1% and 99% of the rewards.
- Now let’s consider that A owns 1% or more of the veDFX supply (i.e. as much as or more than its share of the pool).
- Again, the boost calculator now considers that it bringsof liquidity to the pool.
- Therefore, wallet A is now earningof the rewards, or a 2.46x multiplier.
- On the other hand, if wallet B, which owns much more liquidity than A, had 1% of the veDFX supply as well, its considered liquidity would go from 9900 to:
- Its share of earnings would go from 97.54% to:A very small increase compared to wallet A.
- In this situation, wallet A share of rewards and boost would go from 2.46% to:
Example 3: Introducing wallet C
Staying in example 2's situation, let's introduce a wallet C providing 2000 of liquidity. In this case, the considered liquidity for B and C becomes:
- Wallet B considered liquidity:
- Wallet C considered liquidity:
And Wallet A, B, and C share of rewards become:
As expected from the formula, LPs owning a bigger share of the pool need to hold a bigger share of the veDFX supply to significantly increase their boost. Similarly, the smaller the share of the pool owned initially, the bigger the increase in rewards.
Gauges:Each liquidity pool has one and their weight (emission amount) is dependent on how the veDFX holders vote.
Epoch:The time it takes for a certain amount of blocks on the chain to be completed.
Emission:The rate and amount of rewards released to that gauge.