How is the Supply APY Calculated?
The Supply APY of an asset consists of two parts: Base APY and Rewards. These components contribute to the overall interest rate and rewards received for supplying assets on Moonwell.
The Base APY represents the automatically compounding interest rate that lenders receive by supplying assets on Moonwell. It is calculated based on fees paid by borrowers.
Here are the key points to understand about Base APY:
Auto-compounding: The Base APY is automatically compounded back into the underlying smart contract of the supplied asset. There is no need to manually claim, as the interest is added directly to the amount supplied.
Asset-specific Rewards: The Base APY is distributed in the same token that was supplied. For example, if GLMR tokens are supplied, a user will receive additional GLMR tokens.
Determining Base APY: The Base APY is determined by the demand for the asset. The protocol algorithmically considers the current market dynamics and adjusts the APY accordingly. When a market has higher utilization (more people are borrowing the asset), this will be reflected in a higher Base APY.
Monitoring Rewards: Users can track the accumulation of Base APY earnings over time by checking the supplied value of the respective asset.
These are rewards that need to be manually claimed.
Here are the key aspects of Rewards:
APR Rewards: Rewards are in APR (Annual Percentage Rate) and do not compound.
Source of Rewards: Rewards can be sourced from various providers or grants, including the Lunar Technology Foundation and Moonbeam Foundation. For example, if GLMR tokens are supplied on Moonwell, users are able to earn both WELL and GLMR token rewards.
Market Utilization and Liquidity
Market utilization is a metric that calculates the percentage of borrowed funds relative to the total supply of assets in a specific market. A utilization rate above 100% indicates that the total borrow amount has surpassed the total supply, including both the principal borrowed amount and any accrued interest on the asset.
When a market's utilization approaches 100%, users with current lending positions of the associated asset may experience difficulties withdrawing their assets due to potential liquidity shortages. In such cases, users should monitor the market liquidity and plan their transactions accordingly.
To ensure successful withdrawals, users should keep an eye on the following:
Market Liquidity: Regularly check the market liquidity information provided for each market. This information can help determine the availability of funds for withdrawal.
Timing: Plan withdrawal transactions during periods of higher liquidity to increase the chances of successful withdrawals.
Transaction Monitoring: After initiating a withdrawal, users should monitor their transaction logs on block explorers like Basescan (Base), Moonscan (Moonbeam) and Moonscan (Moonriver). Any failure messages in the logs indicate unsuccessful withdrawals. If a user attempts to withdraw more liquidity than is currently available, the withdrawal will fail.
Monitoring market utilization and liquidity is essential for making well-informed decisions and ensuring successful withdrawals.