Reward Calculation for the HUB-BNB Community Pool
Recently, the first community pool—which is HUB-BNB—has been launched. It marked the arrival of a new DeFi tool that lets you participate using a single asset. In short, the benefits are:
— In order to join the liquidity pool, for my BNB, I'll get a HUB equivalent completely free (meaning I'll participate in the pool with one token only)
— I'll lend my BNB into the liquidity pair and earn on all deals made within the pool (0.17%)
— At the same time, I'll be collecting all side rewards (farmings, promos, lotteries)
— If HUB's price grows, I'll multiply my BNB; if it falls, I'll be partially recompensed via an increased share of HUB tokens in the pool
I'd like to take a closer look at the last one, that's why in this article, I'll demonstrate my estimates of potential earnings by considering various scenarios 1 year post-lock.
But first, a quick takeaway for those who don't want to get into the math business.
Assume you've provided 10 BNB. Let's calculate how much you'll be able to withdraw in a year under three situations that see HUB's price change in relation to BNB in the pool (identical to changes in HUB's dollar worth).
🏷 If HUB goes x5, the user gets:
🏷 If HUB goes x2, the user gets:
🏷 If HUB goes -x2, the user gets:
The calculations above are based on pure shares and do not account for pool fees, possible farmings, and airdrops. On top of that, the potential growth of BNB itself is also left out.
Let's now take two opposite situations in concrete figures. Let me remind you that the math in this article is derived from two simple rules:
- BNB's dollar-denominated price remains unchanged;
- HUB's price against BNB is flexible (as well as against USD).
Estimates if HUB grows by 2 times
Take current state of the HUB-BNB pool:
For HUB to grow by 2 times, we'd need to buy 300 HUB (removed from pool) and sell 35.8 BNB (added to it).
Pool's state after HUB growth:
- HUB = 724.3 (1,024.3 - 300)
- BNB = 122.07 (86.27 + 35.8)
- Price of HUB = 0.168 BNB (twice as much as the original price)
- Price of BNB = 5.93 HUB
Now to the shares. At the beginning, the user provided 10 BNB, which amounted to 11.59% of the pool's total BNB liquidity. At the same time, the other party provided 118.73 HUB (also 11.59% of the pool's total HUB liquidity, i.e. 50% according to the liquidity pool's basic rule). Once HUB's price increases, the ratio of tokens will change, too:
- 11.59% of total BNB liquidity (122.07 BNB) is 14.15 BNB
- According to the terms laid out in the smart contract, if HUB price grows, the user gets back their BNB, or 10 BNB in our example
- According to those same terms, the user gets 50% on increase in BNB according to own share. The increase stands at 4.15 BNB
- 50% of BNB increase is 2.075 BNB
To sum it all up, in 365 days, the user gets:
10 BNB + 2.075 BNB
Provided that BNB always costs $300, let's do some multiplication:
(10 + 2.075) * 300 = $3,622.5
The initial deposit of 10 BNB at $3,000 followed by the eventual withdrawal of $3,622.5 translates into a +20.75% profit.
Estimates if HUB falls by 2 times
Once again, take current state of the HUB-BNB pool:
For HUB to fall by 2 times, we'd need to sell 420 HUB (added to pool) and buy 25 BNB (removed from it).
- HUB = 1,444.3 (1,024.3 + 420)
- BNB = 61.13 (86.27 - 25)
- Price of HUB = 0.042 (half as much as the original price)
- Price of BNB = 23.62
Once HUB's price decreased, the ratio of tokens will change, too:
- 11.59% of total BNB liquidity (61.13 BNB) is 7.08 BNB (here the user gets back some of their initial deposit, their share of BNB liquidity)
- 11.59% of total HUB liquidity (1,444.3 HUB) is 167.4 HUB (this one is a share of the second party who supplied HUB)
- The increase in the second party's HUB share stands at 48.67 HUB (167.4 - 118.73)
- 50% of HUB increase is 24.3 HUB (which the user gets according to the terms of participation)
To sum it all up, in 365 days, the user gets:
7.08 BNB + 24.3 HUB
Provided that BNB always costs $300 while HUB loses half its value ($25 -> $12.5), let's do some multiplication:
7.08 * 300 + 24.3 * 12.5 = $2,427.75
The initial deposit of 10 BNB at $3,000 followed by the eventual withdrawal of $2,427.75 translates into a -19.10% loss.