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What is Yield Boost?

And why is it important?
AshSwap's Yield Boost UI.

Description

The Yield Boost feature of AshSwap allows users to significantly boost their earnings from liquidity staking by owning veASH. To better understand how this works, let’s first touch on the concept of Pool Weight and how your rewards are calculated.

Pool Weight

Liquidity Pool

When you add your tokens to a liquidity pool, you own a portion, a percentage of that pool, and you are entitled to part of the trading fees.
In the liquidity pools of decentralized exchanges (DEXs), because they distribute trading fees on a pro-rata basis, they need to know how much fees should be distributed to each liquidity provider (LP). For example, if Alice owns $10 of a pool of $100, she earns ten cents on every dollar of the trading fee. DEXs do it by having a total weight of the pool and proportionally assigning a weight to Alice. In this particular example of liquidity pools, the weights are token values.
💡 Note that all calculations in this article are arbitrary and serve as the foundation for understanding. They do not represent any actual implementation of any specific AMM.
The formula for calculating a person’s portion of a pool is as followed.
Pu=WuWP_u=\frac{W_u}{W}
In which W_u is the weight (token value) of the LP in the liquidity pool, and W is the total weight of all LPs. The trading fee distributed to that user is:
Feeu=FeePu=FeeWuWFee_u = Fee \cdot P_u = Fee \cdot \frac{W_u}{W}

Liquidity Mining

This is a concept that people often find hard to grasp. To attract more people to add tokens to the pool, DEXs reward LPs with DEX tokens. The more tokens a pool has, the greater the pool’s liquidity is. DEXs in this sense mine liquidity out of their LPs. So when you hear the word “mining” in a blockchain context, you can understand it by finding out who mines something out of which/whom.
Let’s look at the Maiar Exchange and its MEX token. At the time of writing, Maiar is distributing about 60,000 MEX tokens every block to the LPs of the EGLD/USDC pool, thereby providing LPs with a 34% yield on their pooled tokens.
But Liquidity Mining has 6 syllables and doesn’t sound familiar. People, therefore, often refer to this as Farming because, from the user's perspective, they are rewarded by putting their capital to work, just like how farming is.
Bob is a user and he wants to farm, the way he does it is to first add his tokens to the pool and become an LP. He then receives some LP Tokens in return as proof, and now he can lock/stake his liquidity (LP tokens) in the farms to start getting some yields. This is why we call this step “Liquidity Staking” at AshSwap. At this point, I know you start cursing. Yes, it isn’t very clear but they all mean the same thing. Farming = Liquidity Mining = Liquidity Staking.

Farming Rewards

Similar to how liquidity pools distribute fees, farms also use the same mechanism to calculate users’ rewards. A farmer’s reward is proportional to his weight in the farm.
Rewardu=RewardWuWReward_u = Reward \cdot \frac{W_u}{W}

Yield Boosting

Boosting

At AshSwap (similar to Curve), veASH is incorporated in the way the pool weight is calculated such that the user’s veASH holding can boost his pool weight up to 250%.
Wu=min(0.4Iu+0.6Iwuw,Iu)W_u = min(0.4I_u + 0.6I\frac{w_u}{w},I_u)
Wu is the user’s weight in the farm.
Iu and I are the numbers of LP tokens of the user and the total number of LP tokens in the farm, respectively. Read this article if you don’t know what the LP token is.
wu is the user’s holding of veASH, and w is the total veASH there is.
I=IuI = \sum I_u
w=wuw = \sum w_u
This looks confusing, but not really. Let me walk you through each part of this formula. First, let’s look at the addition part.​
0.4Iu+0.6Wwuw0.4I_u + 0.6W\frac{w_u}{w}
0.4Iu means if you don’t have any veASH, your maximum weight is 0.4 of your LP tokens. Wait, we’re not taking anything away from you. Assume that all farmers don’t have veASH, the weight of everyone is multiplied by 0.4, so your portion in the pool remains the same. It is only different when we add the veASH part.
The second addend is the ratio of your veASH to the total veASH normalized by the total LP tokens. But isn’t it that the result can increase to be more than 250% of Iu as W can be very large and wu/w has the maximum value of 1? That’s why we have the min operator. When the result of the addition becomes larger than Iu, your weight is Iu.
All of this can be understood as your weight is defined as 40% by your number of LP tokens in the farm and 60% by your number of veASH.
The differences between farmers with the same LP tokens but different veASH holdings.

Why have this?

The most dangerous thing that can happen to a token is people can’t do anything with it except for selling. The ultimate goal of designing token economics of a product is to create as much utility as possible for your token. By deeply integrating veASH and Governance Staking into the process of liquidity mining, we can create a more positive feedback loop, thereby bringing more incentives to people who buy/hold/stake ASH.

Max Boost?

This is a common misconception of this mechanism of Curve, which is often people think they can boost their yield up to 250%, but in fact, they are only able to boost their weight.
Max boost is 2.13x, even when your CRV is unrealistically large.
Boosting your yield to 250% means your weight has to increase by 2.5 times with respect to the total weight of the pool. Let’s look at the proof showing this is not possible.
After boosting, your maximum weight is Iu, and the total pool weight is W. Your portion in the pool is now Iu/W.
If your weight is not boosted (no veASH), it is 0.4Iu, and the total weight without your boost is W-0.6Iu. Your portion in the pool is 0.4Iu/(W-0.6Iu).
Divide the boosted weight to the unboosted one, and we have:
IuW0.4IuW0.6Iu\frac{\frac{I_u}{W}}{\frac{0.4I_u}{W-0.6I_u}}
=IuWW0.6Iu0.4Iu= \frac{I_u}{W}\cdot \frac{W-0.6I_u}{0.4I_u}
=W0.6Iu0.4W= \frac{W-0.6I_u}{0.4W}
=2.51.5IuW= 2.5-1.5\frac{I_u}{W}
This means you can only have close (never equal) to a 250% boosted yield if your portion of the pool is very small. This is not a bad thing, it’s just how the math works.

Optimal Choice

From the equation (1), the boost by veASH is <=0.6Iu. Therefore, the optimal veASH is:
0.6Iwuw=0.6Iu0.6I\frac{w_u}{w}=0.6I_u
Iwuw=Iu\Leftrightarrow I\frac{w_u}{w}=I_u
wuw=IuI\Leftrightarrow \frac{w_u}{w}=\frac{I_u}{I}
This means the maximum boost happens when the ratio of your veASH to total veASH equals the ratio of your LP tokens in the farm to the farm’s LP tokens. If you only have stake in one farm and want to increase your yield, you should consider either staking ASH for veASH or increasing your LP tokens in the farm. Sometimes it is cheaper to stake more LP tokens than to stake ASH.
However, veASH is not only used for yield boosting but has other benefits:
  1. 1.
    Your veASH can boost all of your farms, not just one.
  2. 2.
    You are shared with 50% of the trading fees from all pools of AshSwap.
  3. 3.
    You earn voting right later in the DAO and can direct more ASH emissions to the pool you are in.
  4. 4.
    Other projects can bribe you to vote for them in the DAO, so you can earn more with their bribes.
  5. 5.
    veASH will have more and more use cases in the later features of AshSwap.
It is a lot to wrap your head around, but you should take all this into account when calculating your potential rewards and making your decisions.

Tokenization of Farming Position

This is our improvement compared to the existing implementation of Curve by leveraging Elrond's Meta-ESDT tokens. This brings more utility to ASH. I will write more about this in the next article of the "Deep Dives" series.