Improving Leveraged APY Calculations

Today, we're excited to share a significant update to our platform that enhances the way we calculate Annual Percentage Yields (APYs) for our leveraged yield products. This update makes our calculations more accurate and transparent so that you can be more confident earning leveraged yield on Notional.

The Journey So Far: Understanding Our Leveraged Yield Products

Our leveraged yield products are designed to help you maximize your returns by depositing into strategies that earn yield from other protocols. Essentially, we leverage the power of multiple DeFi protocols to generate higher yields for you. However, accurately calculating and displaying these APYs on our platform has been a complex task.

The Old Way: Reproducing Protocol Calculations

Previously, we calculated APYs by reproducing the full yield calculations of each underlying protocol we integrated with. While this method aimed to provide transparency, it came with significant challenges:

1. Complexity and Error-Prone Calculations: Each protocol has its own unique mechanisms for generating yield, often involving intricate formulas and variables. Reproducing these calculations was not only complicated but also increased the risk of errors.
2. Constantly Evolving Protocols: DeFi protocols are dynamic and frequently update their mechanisms. Keeping our calculations in sync required constant monitoring and adjustments. If we missed an update, our displayed APYs could become inaccurate.

The end result? Despite our best efforts, the APYs shown on our platform were sometimes incorrect, which could mislead users and erode trust.

The New Approach: Simulating Real Rewards

To address these issues, we've overhauled our APY calculation method to make it more robust, accurate, and transparent.

How It Works

Instead of theoretically calculating the potential rewards from underlying protocols, we now simulate the actual incentives we can claim:

1. Daily Chain Forking: For each day in the past, we create a fork of the blockchain as it existed on that day.
2. Time Warping: We simulate moving forward in time by 24 hours within this forked chain.
3. Real Reward Collection: By doing this, we can see the exact amount of incentives we would have been able to claim during that period.
4. Accurate APY Calculation: We use these real-world figures to calculate the APYs for our leveraged yield products.

The Benefits

This new method offers several significant advantages:

1. Immediate Adaptation to Protocol Changes: Since we're using actual data from the blockchain, any changes in the underlying protocols are automatically reflected in our simulations. There's no lag or manual updating required.
2. Enhanced Accuracy: By basing our calculations on real incentives collected, we eliminate the inaccuracies that come from theoretical models. In fact, our APY calculations may now be more precise than those displayed on the underlying protocol's own interfaces.
3. Building Trust Through Transparency: You can have confidence that the APYs displayed on our platform are accurate and reflective of real-world performance.

Why This Matters to You

Reliable information is crucial. Inaccurate APYs can lead to misguided investment decisions, affecting your returns and overall experience. By enhancing our APY calculation method, we're ensuring that you have the trustworthy data you need to earn leveraged yield confidently.

Our Commitment to Transparency

Transparency isn't just about sharing information; it's about making that information clear, accurate, and accessible. This update is a significant step forward in our ongoing mission to be the most transparent and user-focused platform in DeFi.

Join the Conversation

We're excited about this update and eager to hear your thoughts. If you have questions or feedback, jump in our Discord and let us know!

The Notional Team