Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

The emerging stablecoin player Usual (USUAL) has recently performed well, with the continuous rise in coin price attracting a lot of user attention to the astonishing yield presented by the official staking channel of USUAL.

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

• Odaily 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 USUAL to be staked, the simulation results are even more exaggerated and intuitive — assuming staking 10,000 USUAL, one can expect to earn 2,203,752 USUAL in a year, which translates to about 6,037 USUAL per day…

Many users' first reaction upon seeing these numbers is "Isn't this just picking up money?" But is it really so? In the following text, we will unveil the numerical magic of USUAL's staking yield 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 includes the compounding effect in its calculations, which usually results in APY appearing to be higher.

For example, if you deposit $1,000 into a pool with an APR of 100%, your return at the end of the year would be $2,000; however, if the pool uses a daily compounding mechanism, meaning interest is calculated and reinvested daily, your return at the end of the year 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 daily compounding 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% is the APY yield, and the official statement clearly mentions that it compounds daily (automatically compounded every day).

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

Some friends may ask, since USUAL's staking mechanism clearly provides for daily compounding, why ignore it? The reason is that in a compounding model, daily returns will gradually increase over time, and when evaluating shorter-term yields, the APR figure is actually more reliable.

Taking the earlier mentioned example of "assuming staking 10,000 USUAL, with an expected daily earning of 6,037 USUAL over a year" and expanding slightly.

If one truly stakes for a full year, under the condition that APY remains unchanged, this calculation result indeed holds, but 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, and then daily earnings will gradually increase due to compounding, as the principal staked 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 a constant APY.

Potential Risks

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

Unstaking Penalty Risk

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

Risk of Expanding Staking Scale

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

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

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 of significantly reduced real returns or even a shrinkage of the principal.

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