LOAN Staking Pool APR: Why Does Number Goes UP? (or down)

The LOAN Staking Pool APR is not fixed.

It fluctuates up and down based on many different factors.

Let’s learn why the APR moves around to better understand the Liquid Loans protocol.

What is the Loan Staking Pool?

The Loan Staking Pool allows users to stake LOAN Token to earn a portion of the borrowing and redemption fees of the protocol.

Anytime a user borrows USDL they pay a fee which is 0.5-5% of the PLS in their vault. This PLS is paid instantly to the LOAN staking pool.

Anytime a user redeems USDL for PLS they pay the same fee, but this time it is in USDL.

LOAN stakers earn fees proportional to their share of the pool.

For example, if the total fees of the day are 1,000,000 USD worth of USDL and PLS, and a user owns 1% of the pool, they will earn $10,000 that day. 

What Factors Influence LOAN Staking Pool APR?

The equation which determines staking pool APR is:

Your fees = (Redemption Fees (# of USDL * Price USDL) + Borrowing Fees (# of PLS * Price PLS) ) / Your share of the staking pool

1. Amount of Fees

The most obvious factor is the amount of borrowing and redemption fees. If users are borrowing and redeeming more often and in higher amounts the fees will increase. 

The amount of fees is determined by interest in borrowing and redeeming as well as the prices of PLS and USDL.

2. Borrowing and Redemption Fee Rates

Fees for borrowing and redemption fees are variable between 0.5% and 5%. They fluctuate as a function of the demand for borrowing and redeeming. 

3. Your Share in the Pool

The more LOAN token you have staked compared to everybody else determines the percentage of the fees you receive. 

The Bottom Line

The LOAN staking pool APR will be higher at times and lower at times.

Before deciding to buy LOAN token and stake it, it is important to understand the factors that influence payouts.