Following the announcement of our LP Program we’ve had some great engagement in our community about the program and how we’re rewarding supporters. From these conversations we’ve identified that there is some confusion regarding the yield figures we’ve been giving and the definitions and calculations associated with them. I’d like to take this opportunity to clarify.
The nature of this LPP and the rewards we’re offering do make this discussion less straightforward. An APR is traditionally used for lending calculations and, as its name suggests, is an Annual Percentage Rate. An APY (Annual Percentage Yield), however, takes into account a compound interest rate. While APY is commonly used on DeFi platforms, it is not a perfect assessment of the actual yield because they make the assumption the yield will be consistent from that moment in time and, therefore, are really only indicative under given conditions.
At Bumper, we tried to provide an APY figure as a comparative to other platforms but, in actual fact, the calculations, although related to an asset (BUMP) that is somewhat separated from the underlying investment locked in the protocol (USDC), do mean it wasn’t as straightforward an assessment as we originally thought. That being said, the BUMP tokens are distributed immediately to the user upon deposit, and so do not compound during the LP Program. Our system of BUMP distribution is a simple calculation which relates the price to TVL linearly.
Thankfully and rightfully, we’ve been challenged by our community recently and are humble enough to raise our hands and apologise for the confusion. I can confirm the figures we have presented are based on an APR calculation, so the indicated 315% is, in fact, the APR and not the APY.
The positive note on this is that if you were to make the assumption of a single compounding event after 3 months, using that 315% APR figure, the end result offers the LP an indicative APY of circa 900%.
In the near future, we will continue to publish the current figures with the APR amendment because we believe those to be the accurate measure of the reward rate. We will also look to provide APY and ROI figures for full coverage of the different calculation methods.
On behalf of the team at Bumper, we apologise for this issue and appreciate your patience as we worked to find a resolution. We are constantly aiming to improve the Bumper protocol for everyone and greatly appreciate our community’s checks and balances. The stronger we can make this protocol, the better for all of us.
