How Much Did I Earn Through $ERG/$SigUSD Spectrum Finance Liquidity Pool
What is this article about
In AMM DEXes users can earn fees by providing liquidity. On most DEXes, you can find Liquidity Pools with different assets. One of the Spectrum Finance users (reddit.com/user/GreenDiamond86) conducted a study in which he indicated the profitability of providing liquidity in the $ERG/$SigUSD Liquidity pool for the year. He described in detail the market situation at various time intervals and clearly demonstrated the results of his work.
Environment:
In Q3 the Global Markets remain bearish. At the same time, the US dollar index $DXY (an indicator of the strength and weakness of the American currency) kept climbing to its potential temporary high at 150.
$BTC remains below the structural resistance of $32,000 in Q3 while seeing a tendency of weaker bearish activity over the last week in September.
The price of the underlying asset ($ERG) kept declining over the first three weeks of Q3 and fell below the $2 base down to its yearly low of $1.65 on the 13th of July 2022. Between July and mid September, $ERG saw an impulsive bullish move that topped out on the 6th of September at $5.2 which is an increase in price of 315,15% within less than 2 months. After the 6th of September $ERG started its correction, trading at $2.7, which is a little less than a 50% decline from its local high.
The development activity on the Ergo blockchain remains stable with a slight positive momentum over the last year, and at the same time the structure in the $ERG/$USD pair remains neutral with a potential short-term target of $2.46. The metric “development activity on the Ergo blockchain” here consists of all development that is related directly to the chains infrastructure potential. That means node amount, hashrate, multichain wallets, exchange connections and other infrastructure potential like bridges, ledger hardwallet and more that potentially attracts financial services and user groups not related to blockchain directly.
The dAPP development activity on the Ergo blockchain saw severe positive momentum over the last 6 months. The on-chain data on Ergo shows a positive sentiment regarding transactions count, number of wallets and trading volume. But global market conditions remain unstable. The “dAPP development activity” is related to all external groups of actors that build use cases around the blockchain itself for customers like the stablecoin, games, hackathons, DAOs.
Spectrum Finance data
Taking into account the following input data, it was decided to conduct a study on the profitability from providing liquidity in the Spectrum Finance DEX on the Ergo blockchain. For this, the ERG/SigUSD pool was chosen.
The sample to measure the yearly yield of the asset (=$ERG/$SigUSD liquidity stack) on Spectrum Finance initially consisted of Liquidity pool input (ERG — 745 and SigUSD — 8731,66) and Liquidity pool output (LP Token — 763 377 144).
This sums up to an initial investment of $17462.8
This is the amount we would have been awarded through the liquidity pool on the 21st of September 2022, which is exactly one year after the initial stack of liquidity was provided. To calculate the yield from this reward, the initial amount’s current value is compared to the actual current value of the stack. That means “how much would we have if we would have just let the initial stack remain in the wallet instead of putting it into the liquidity pool?”.
If we would have withdrawn everything on the 21st of September 2022, we would have gotten 1919,33 ERG and 5916,02 SigUSD back from the protocol, compared to the 745 ERG and 8731 SigUSD we put in on the 21st of September 2021.
To calculate the actual gains over the year, the comparison is this: (current stack x current price) — (initial stack x current price) which shows a raw plus of $801,3 over one year. Regarding the initial value of $17462, that’s a yearly yield of 4,59%.
1919,33 ERG (=$5.911,53 at the time of writing) + 5916,02 SigUSD = $11.827,55
For the period while providing liquidity from 09.21.2021 to 09.21.2022, the balance in the pool changed as follows:
ERG 745 ➡️ 1919,33
SigUSD 8731,66 ➡️ 5916,02
LP Token 763 377 144 ➡️ 922 750 000
This sums up to a current value of $11 827.55
Over the period of 1 year, $ERG price declined by ~73,5% (as of time of recording).
Meanwhile the value of the investment sample dropped by ~32,28% (as of time of recording). Over the same period, the total market cap of the global crypto market dropped by ~51,06%.
Comparing asset performance & yield:
Initial investment:
745 ERG (=$2.294,6 at the time of writing) + 8731,66 SigUSD = $11.026,26
Current price:
1919,33 ERG (=$5.911,53 at the time of writing) + 5916,02 SigUSD = $11.827,55
The pool LP asset gained $801,3 out of initial investment of $17462,8 over the period of 1 year (date: 21.09.2022).
Conclusion:
From 21.09.2021 to 21.09.2022, the accumulated yield of the $ERG/$SigUSD pair on Spectrum Finance (formerly ErgoDEX) sums up to $801,03 or 4.57% per annum. Impermanent loss is excluded in all calculations.
The asset outperformed the global crypto market over the last year. It also outperformed the expected rewards for various staking cryptocurrencies e.g. Cardano’s $ADA over the last year which might become a potential risk for PoS infrastructure in the future.
The asset did not outperform S&P500 during the last year.
We express our gratitude for the provided research materials to the Spectrum Finance user (reddit.com/user/GreenDiamond86).
