$APE Staking
When $APE holders stake through Pawnfi, their $APE is directly deposited into the official Horizen Labs contract. A key advantage of staking with Pawnfi is the automated compounding of your returns. Periodically, unclaimed rewards are reinvested into the Pawnfi $APE Pool as the new principal.
If an NFT holder wishes to borrow from Pawnfi's $APE Pool for NFT staking, the smart contract will claim back a portion of the deposited $APE and lend it to the NFT holder. Similar to the Cross Margin Lending Market, interest revenue is auto-compounded.
In essence, there are no idle $APE in Pawnfi, as they are either lent out or staked in the official $APE Pool. With both revenue streams auto-compounded, $APE stakers can enjoy the most efficient and legitimate returns.
$APE Staking APY
Horizen Labs $APE APY
The official $APE staking rate (without compounding) is sourced from the Horizen Labs contract. This rate can be accessed via the data on https://app.apestake.io/pools. Furthermore, this rate serves as the base rate in the absence of NFT holders borrowing from the Pawnfi $APE Pool.
Reinvestment Reserve
When every time Pawnfi perform reinvestment, a portion of reinvested amount (claimed from unclaimed rewards and supply back to Pawnfi $APE Pool) will be charged by Pawnfi. This reserve is used to cover the costs associated with reinvestment, such as gas fees.
At present, the reinvestment reserve for the $APE Pool is set at 1.5%. However, it may be subject to amendments based on DAO governance decisions or changes in market conditions.
Borrow Rate
If an NFT holder seeks to borrow from Pawnfi's $APE Pool for NFT staking, the smart contract retrieves a portion of the deposited $APE and lends it to the NFT holder at a specified rate. The following parameters determine this rate:
Utilization
$APE liquidity is characterized by its utilization rate :
Like the Cross-Margin Lending Market, the utilization rate (U) indicates the proportion of total staked $APE borrowed at a specific time (t). As U nears 100%, capital scarcity increases until no more assets can be supplied. This situation poses challenges for suppliers seeking to withdraw liquidity when funds are unavailable. Although uncommon, U may surpass 100% if the platform reserve is accessible for borrowing but excluded from Total Supply calculations.
High utilization rates generate higher returns for suppliers, requiring a balance between optimizing utilization and maintaining liquidity. Therefore, the $APE market, like other token markets in the Lending Market, is calibrated around an optimal utilization rate (U optimal) or "Kink" that reflects market conditions and is incorporated into the $APE Pool market to ensure efficiency and stability.
Interest Reserve
The interest reserve is vital for ensuring the protocol's sustainability, primarily deriving from borrower interest payments. It serves as incentives for protocol governance and risk premiums to protect suppliers.
Interest reserve stimulate borrowing demand, subsequently increasing the protocol's reserves and market liquidity supply. They contribute to a multivariate system that mitigates market risks and maintains stability. The $APE reserves function as an insurance fund for Pawnfi $APE Staking, safeguarding users in extreme situations.
At present, the interest reserve for the $APE Pool is set at 5%. However, it may be subject to amendments based on DAO governance decisions or changes in market conditions.
Interest Rate Model
The $APE Pool interest rate strategy follows the same design as the Interest Rate Model under the Cross Margin Lending Market. However, since idle funds are invested in Horizen Labs' $APE contract, borrowers must compensate for the opportunity cost. As a result, the base rate incorporates a spread based on the Horizen Labs $APE Rate.
To mitigate liquidity risk and optimize utilization, borrow rates are determined by the Utilization Rate (U), serving as an indicator of capital availability within the pool. The interest rate model manages liquidity risk by adjusting user incentives to support liquidity:
When capital is abundant: lower interest rates encourage borrowing.
When capital is scarce: higher interest rates incentivize loan repayments and additional capital supply.
Borrow Rate = Base + Multiplier x Min(Utilization Rate, Kink) + Jump Multiplier x Max(Utilization Rate - Kink, 0), where
Base = Horizen Labs $APE APY + 4%
Multiplier = 10%
Jump Multiplier = 150%
Kink = 75%
Again, those parameters are subject to amendments based on DAO governance decisions or changes in market conditions.
Final Staking APY
BR = Borrow Rate
PU = Pawnfi $APE Pool Utilization
IR = Interest Reserve
HL_APY = Horizen Labs $APE APY
RR = Reinvestment Reserve = % of reinvested amount charged as Pawnfi reserve
$APE Staking APY = BR * PU * (1 - IR) + (1 - PU) * HL_APY * (1 - RR)
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