Variability of APR's

As mentioned above in the Volatility and Yield Farming section; the headline APRs displayed by a DEX or by YieldFi are largely the sum of trading fees accruing for liquidity providers, and native token rewards. It’s important to note there are many factors which can cause the APRs of yield farms to go up or down, and more often than not the trend is down rather than up.

The first is trading fees. During periods of higher trading volume, more trading fees will be generated and distributed pro-rata to those who have provided liquidity into the pool.

The second variable component to the APR are the native rewards. Native rewards are distributed to liquidity providers either at the discretion of the management team of the DEX, or by a governance vote as in the case of protocols such as Curve. The DEXs / protocols YieldFi is currently integrated with are determined at the discretion of the DEX management team. DEXs will often choose to attract liquidity into a new yield farm by providing a high quantity of their native rewards. These native rewards are shared pro-rata with liquidity providers in proportion to the amount of liquidity they have provided into the liquidity pool. When the yield farm is first launched, due to the low liquidity levels, they will often display an APR in the hundred, thousands or tens of thousands of a percent. This proves a great incentive for people to come and be liquidity providers in the yield farm. Equally DEXs will discretionarily decide to stop providing their native token to specific individual farms, at which point the APR can significantly reduce. In these cases they typically redirect the native rewards to other Yield Farms (new or existing).

The third variable is the volume of liquidity in the yield farm. The more liquidity in the liquidity pool, the more capital which is sharing the trading fees and the native rewards tokens. You will often find that when the yield farm is first launched it will attract a lot of liquidity into the pool, until it reaches a point where the APR is not attractive to some people, so they will leave (eg they may have a view that you need a certain minimum APR to offset potential IL based on the tokens historic volatility). At some point the market finds a liquidity volume equilibrium where the liquidity providers are happy to provide liquidity for the stated APR.

YieldFi has intentionally designed its infrastructure to be able to add yield farms rather rapidly, so that when new yield farms are released by a DEX with extremely high APRs, YieldFi can add those yield farms rapidly so our B2B customers and the end users can take advantage of the extraordinary yields while they last.