Annual Percentage Yield (APY)
The Annual Percentage Yield (APY) dynamically adjusts to reflect the current utilization of our lending services. The APY on Mage Finance comprises several key components:
Supply APY
This represents the base interest rate earned on supplied assets and varies with the value of the supplied assets.
Borrow APY
This is the basic interest rate applied to borrowed assets, which increases with the size of the borrowed asset and can sometimes be negative, indicating a situation where interest is paid by borrowers.
Net APY
The Net APY is calculated as follows:
It can be negative if Borrow(Base) APY doesn't cover the entire yield.
Example
Suppose a user deposits 1 BTC and borrows an 60% of deposited value in stablecoins on Mage Finance. Let's consider the following rates: Supply APY for BTC: 3%; Borrow APY for stablecoins: 6%.
Supply Side:
The user's 1 BTC deposit (assuming 1 BTC = $50,000 for simplicity) earns a base APY of 3%, amounting to $1,500.
Borrow Side:
For borrowing 60% of the deposit value in stablecoins ($30,000), the user faces a 6% borrowing APY, which is $1,800.
Net Earnings and APY Calculation: Total Supply Earnings: $1,500 Total Borrow Costs: $1,800
Net Total Earnings: $1,500 ( annual supply earnings) - $1,800 (annual borrow costs) = -$300
Net APY = (-$300) / ($50,000 + $30,000) = -0.375%
In this scenario, considering both supply and borrow transactions, the user would incur a net APY of -0.375%.
Last updated