Pledge APY up to 22037%? Quick calculation reveals the mathematical magic of USUAL

Author: Azuma, Odaily Planet Daily

The emerging stablecoin player Usual (USUAL) has recently performed well, with a significant increase in its price attracting many users' attention to the astonishing yield presented by the official staking channel of USUAL.

As shown in the figure below, the information on the Usual official website indicates that the current real-time APY for staking USUAL is as high as 22037%.

Note: Staking USUAL unlocks governance rights and earns 10% of newly issued USUAL, which is also the source of USUAL staking rewards.

After opening the staking homepage and entering the amount of pre-stored USUAL, the simulated calculation results become even more exaggeratedly intuitive ------ assuming staking 10,000 USUAL, the expected amount after one year could be 2,203,752 USUAL, with daily earnings of 6,037 USUAL……

Many users' first reaction upon seeing these numbers is "Isn't this just picking up money?" But is it really the case? In the following text, we will unveil the numerical magic of USUAL staking yields through a series of calculations.

APR vs APY

Older generation DeFi players may be quite clear that although APR and APY are two seemingly similar metrics commonly used to measure cryptocurrency investment returns, the actual impact on returns is vastly different.

In short, APR does not take into account the effects of compounding, while APY incorporates the compounding effect into the calculation, usually resulting in APY appearing to be higher.

For example, if you deposit $1,000 into a pool with an APR of 100%, then at the end of the year, your principal plus earnings would be $2,000; but if the pool uses a daily compounding mechanism, meaning interest is calculated daily and reinvested, then at the end of the year, your principal plus earnings would be approximately $2,718, corresponding to an APY of 171.8%.

The conversion between APR and APY can be calculated based on the following consensus, where n is the compounding frequency. If a daily compounding model is adopted over a one-year period, n would be 365.

APY = (1 + APR/n)ⁿ - 1

The Mathematical Magic of USUAL

Returning to the staking scenario of USUAL, the 22037% here is the APY yield, and the official statement clearly mentions that it compounds daily (automatically compounded every day).

Using the formula shown in the image above, with APY set at 22037% and n set at 365, the calculated APR result is 543.65%, corresponding to a daily yield of approximately 1.49%.

Some friends may ask why the staking mechanism of USUAL, which clearly provides a daily compounding mechanism, is being overlooked. The reason is that in a compounding model, daily earnings will gradually increase over time, and when assessing short-term earnings, the APR figure is actually more reliable.

Taking the previously mentioned example of "assuming staking 10,000 USUAL, with an expected daily earning of 6,037 USUAL over a year," let's elaborate slightly.

If you truly stake for a full year, under unchanged earning conditions, this calculation result indeed holds; however, in reality, after staking 10,000 USUAL, users will not receive 6,037 USUAL every day.

The reality is that after staking 10,000 USUAL, on the first day, users will only receive about 149 USUAL (with a daily yield of 1.49%), and then daily earnings will gradually increase due to compounding, as the principal will continue to grow with reinvestment, while the 6,037 figure is merely the daily average over a year ------ note that all of this is still based on the premise of unchanged earning conditions.

Potential Risks

Setting aside users who are staking long-term for other needs, if you are only hastily buying and staking due to the attractive 22037% high interest, please be sure to understand the following risks.

Unstaking Wear Risk

It is worth mentioning that USUAL's unstaking requires a mandatory fee of 10%, which means that with a daily yield of 1.49%, users will need at least a week to recover this 10% unstaking cost.

Staking Scale Expansion Risk

The staking scale of USUAL may further expand, thereby diluting the yield.

Currently, the scale of USUALx (the staking version of USUAL) is about 26 million, corresponding to approximately 27.81 million USUAL staked; while the initial circulating supply of USUAL is 494.6 million. Additionally, Binance has not yet opened USUAL withdrawals. This means that the staking scale of USUAL is expected to have significant growth potential, which may severely dilute the real-time yield of the staking pool.

Odaily Note: The staking APY figure on the USUAL official website is not updated in real-time, and the update frequency is currently unknown.

Price Decline Risk

We cannot predict the market, but the current buying driven by high interest may be an important buying force for USUAL.

All the above calculations are based on the USUAL coin standard. If we consider the risk of price decline, there is a possibility that actual returns may significantly decrease or even the principal may shrink.