How much did I make on the $ERG/$SigUSD Spectrum Finance Liquidity Pool | by Spectrum Finance

AMM DEXes allow users to earn fees by providing liquidity. On most DEXes you will find pools of liquidity with different assets. One of the Spectrum Finance users (reddit.com/user/GreenDiamond86) conducted a study in which he reported the profitability of providing liquidity in the $ERG/$SigUSD liquidity pool for the year. He described the market situation in detail at various intervals and clearly presented the results of his work.

Global markets remain pessimistic in the third quarter. At the same time, the US dollar index $DXY (an indicator of the strength and weakness of the American currency) continued to climb towards its potential temporary high of 150.

$BTC remained below the $32,000 structural resistance in the third quarter while showing a bias for weaker bearish activity in the last week of September.

The price of the underlying asset ($ERG) continued to decline during the first three weeks of the third quarter, falling below the $2 base to its yearly low of $1.65 on July 13, 2022. Between July and mid-September, $ experienced $ ERG initiated an upward momentum that peaked at $5.2 on September 6, representing a price increase of 315.15% in less than 2 months. After September 6th, $ERG started correcting and traded at $2.7, which is a little less than a little less than 50% drop from its local peak.

Development activity on the Ergo blockchain remains stable with slightly 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” includes all developments that are directly related to the infrastructure potential of the chain. That means node count, hashrate, multichain wallets, exchange connections, and other infrastructure potentials like bridges, ledger hardwallet, and more that potentially attract financial services and user groups not directly related to the blockchain.

dAPP development activity on the Ergo blockchain has seen significant positive momentum over the past 6 months. Ergo’s on-chain data shows positive sentiment regarding the number of transactions, number of wallets, and trading volume. However, global market conditions remain unstable. The “dAPP development activity” refers to all external groups of actors creating use cases around the blockchain itself for clients like stablecoins, games, hackathons and DAOs.

Considering the following input data, it was decided to conduct a study on the profitability of providing liquidity in the Spectrum Finance DEX on the Ergo blockchain. The ERG/SigUSD pool was chosen for this.

The sample used to measure the asset’s annual return (=$ERG/$SigUSD liquidity stack) on Spectrum Finance originally consisted of Enter the liquidity pool (ERG – 745 and SigUSD – 8731.66) and Output of the liquidity pool (LP Token – 763 377 144).

Table with input data for the $ERG/$SigUSD liquidity pool

This equates to an initial investment of $17462.8

This is the amount we would have received via the liquidity pool on September 21, 2022, exactly one year after the first batch of liquidity was made available. To calculate the yield of this reward, the current value of the initial amount is compared to the actual current value of the stack. That means, “How much would we have had if we just left the initial stack in the wallet instead of putting it in the liquidity pool?”

If we had withdrawn everything on September 21, 2022, we would have gotten 1919.33 ERG and 5916.02 SigUSD back from the log compared to the 745 ERG and 8731 SigUSD we deployed on September 21, 2021.

To calculate actual gains over the year, the comparison is as follows: (current stack x current price) – (initial stack x current price), giving a raw plus of $801.3 over a year. Based on the starting value of $17,462, that’s an annualized return of 4.59%.

1919.33 ERG (= $5,911.53 at the time of writing) + 5916.02 SigUSD = $11,827.55

For the liquidity provision period from September 21, 2021 to September 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 gives a current value of $11,827.55

Comparative figures for the year

Over the course of a year, $ERG price fell by ~73.5% (at the time of writing).

Meanwhile, the value of the investment sample has fallen by approximately 32.28% (at the time of recording). During the same period, the total market cap of the global crypto market decreased by ~51.06%.

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

Initial investment and current price comparison

The pool LP fortune has gained $801.3 from the initial investment of $17,462.8 over the course of one year (date: 09/21/2022).

From 09/21/2021 to 09/21/2022 the cumulative return of the pair $ERG/$SigUSD on Spectrum Finance (formerly ErgoDEX) is $801.03 or 4.57% per year. In all calculations, temporary losses are excluded.

The capital outperformed the global crypto market during the last year. It also surpassed expected returns for various cryptocurrencies, e.g. B. Cardano’s $ADA, which could become a potential risk for PoS infrastructure in the future.

The asset hasn’t outperformed the S&P500 over the past year.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers