Frequently I see people with an exactly backwards idea about the effect of additional mAssets and corresponding mAsset-UST pools on LP rewards.
My aim in this post is to prove that not only does adding additional pools not reduce LP reward APR, but also that it is in fact the best way to boost and maintain LP reward APR going forward.
The amount of MIR given to the pools per amount of time is fixed. The rewards are distributed according to weight. Thus the average LP reward APR is a function of only two things:
- the total value of all liquidity pools (excluding the MIR-UST pools which are rewarded separately see Mirror Token (MIR) - mirror)
- The price of mirror
The number of pools is irrelevant. There could be 1 pool or 100 pools, the average MIR per LP-value would be the exact same.
The other factor for total LP earning is the volume traded.
I contend that we need to bring up the VOLUME. Not only does volume increase rewards in the form of swap fees, it is also one of the two most important stats people look at for a defi project (the other is TVL:market cap, which is a very nice looking .3 for MIR). So more volume will mean more fees and a higher price for MIR. A continuously increasing value of total liquidity provided without a corresponding increase in volume is the worst case scenario for LP returns. The best thing for LP earnings long-term is the addition of many more mAssets (preferably at a regular interval).
Why would you trade at a market that has 23 options, when there are markets that have hundreds of options?