Title: Quarterly APR Boosting for Uno Re LP Stakers in accordance with the ADR APR model of LP reward distribution.
Authors: Jas Singh, Sujith Sizon, Vithuran K.
Summary:
UIP-01’s introduction of the ADE APR model was introduced to reduce mercenary liquidity, while also increasing capital efficiency for the protocol. As per the UIP’s guidelines, a re-assessment for the staking APRs is over due because of the recent demand in insurance capacity last quarter
Background:
The ADE (Automated Dynamic and Elastic) APR is a model which can increase or decrease the staking APRs reflexive of the TVL, and capacity utilization rate of the insurance pools. This will aid in incentivizing deposits when they are needed most, while also reducing the dilution of $UNO token holders.
To put it simply, if TVL increases while utilization rate stays constant or, utilization rate decreases while TVL is constant, the staking APRs will be reduced. The opposite is also true; if the TVL decreases while utilization rate stays constant, or, the utilization rate increases while TVL stays constant, the APRs will increase.
The formula for ADE APR can be expressed as:
ADE APR = (40 * r^4) + (9000000 / (x + 180000)) + 5R, { 0 < r < 1 }
Where;
r = the utilization rate expressed as a percentage but in decimal form bound by ranges from 0 to 1
x = TVL
R = risk-free rate in DeFi (1.9%)
The utilization rate can be expressed as
Utilization Rate = Insurance coverage sold + insurance coverage pending to be active / Conservative Insurance Capacity
Where Conservative Insurance Capacity can further be expressed as
Conservative Insurance Capacity = (Insurance capacity in non $UNO denominated assets X 2) + (insurance capacity in $UNO denominated assets * 1/3)
For further clarity, please see our UIP-01 post here: UIP-01: Implementation of Elastic APR Model (ADE) and increasing $UNO utility
Calculations:
At the time of writing, our active coverage policies sold account for $640,000
Conservative Insurance Capacity can be derived from the following pools:
Non-UNO Pools
-
ZeusV2 = $95,000
-
Hercules = $45,000
-
Selene = $36,000
Total insurance capacity for non-UNO pools = $213,000
UNO Pools
-
AresBSC = $508,000
-
Ares = $435,000
Total insurance capacity for UNO pools = $943,000
Conservative Insurance Capacity = (213,000 * 2) + (943,000 * 1/3)
= $740,302
Utilization Rate
Given the Conservative Insurance Capacity of $740,302 we can calculate the Utilization rate as
640,000 / 740,302
= 86.45%
Our target rate for utilization is in the ball park of 60-80%. Since the utilization is above our target, it is necessary to adjust staking APRs of non-UNO pools to increase insurance capacity so that UnoRe can underwrite more capital.
ADE APR Calculation:
Given the Utilization Rate of 86.45% and the TVL for all of the insurance pools mentioned above ($1,156,000), we can calculate the appropriate staking APR.
ADE APR = (40 * 0.8645^4) + (9000000 / (1,156,000 + 180000)) + 5(1.9%)
= 38.12%
Proposal:
Due to the increase in demand in insurance capacity last quarter, there is a dire need to increase insurance capacity so UnoRe can scale its operation and offer higher TVL coverage.
As per the ADE APR model, the following non-UNO pools will have their APRs increased to 38.12% to incentivize more deposits:
-
ZeusV2
-
Hercules
-
Aphrodite
-
Selene
Conclusion and next steps:
As UIP-01 has already passed and is in effect, this proposal will not require a voting process. Changes will be made effectively within 48 hrs. However, we encourage active discussion in the forum regarding this proposal.
This is such a nice piece.