YT Anchor Rate

The YT anchor rate refers to the APY corresponding to the redeemable value of YT (i.e., the yields obtained after burning YT). Theoretically, 1 YT represents the yields generated by 1 unit of principal in one day.

By reverse-calculating the current redeemable value of YT, it equates to the yields generated by the yield-bearing asset in one day. Annualizing this value yields a rate, which is the "anchor rate" of YT.

YT Anchor Rate Calculation Formula:

$APY = \frac{ 365 \times SY_{total} \times Y_{accrued}}{YT_{supply} \times (SY_{total}-Y_{accrued})}$

• $Y_{accrued}:$ Accumulated yields in the Yield Pool.

• $SY_{total}:$ Total amount of SY in the current staking pool.

• $SY_{total}-Y_{accrued}:$ Total principal in the current staking pool.

• $YT_{supplyl}:$ Total supply of YT.

Since the YT redeemable value is:

$RV = \frac{Y_{accrued}}{YT_{supply}}$

Therefore, the YT anchor rate can also be calculated using the following formula:

$APY = \frac{ 365 \times RV \times SY_{total}}{SY_{total}-Y_{accrued}}$

Characteristics of the YT Anchor Rate

1. Starts from Zero and Grows Over Time:

   • When YT is first minted, its redeemable value is zero. As time progresses, the interest earnings accumulated by its underlying SY tokens continuously flow into the Yield Pool, causing the anchor rate of each YT to gradually increase from zero.

   • Theoretically, the upper limit of this anchor rate’s growth aligns with the actual interest rate of the yield-bearing asset, so the YT anchor rate will gradually converge toward the actual interest rate of the yield-bearing asset.

2. Potential to Exceed the Actual Interest Rate Cap:

   • This is a particularly interesting feature of the YT mechanism. Typically, we expect the YT anchor rate to be “anchored” to the actual interest rate of the underlying yield-bearing asset, meaning its growth would stop once it reaches the actual interest rate.

   • However, in actual operations, some users may burn YT before the lock-up period ends, or may not redeem their principal after the lock-up period expires.

   • When the circulating supply of YT decreases, the interest earnings redeemable by each remaining YT increase relatively. Additionally, unredeemed positions at maturity continue to generate interest, further boosting the redeemable value of YT. As a result, the pegged interest rate corresponding to YT’s redeemable value (i.e., the anchor rate) may exceed the actual interest rate cap of the underlying yield-bearing asset.

The YT anchor rate is a key indicator for measuring the value of YT. It not only reflects the actual yield capacity of the underlying yield-bearing asset but also exhibits dynamic behavior due to its unique market mechanism, potentially surpassing the actual interest rate. This volatility offers stakers additional earning potential while providing arbitrageurs opportunities to lock in higher returns.