Swap Volume vs. LP Rewards

The purpose of this article is to display the weekly swap volume and LP rewards on the one chart. What is the relationship between them?

With THORchain, users will be able to exchange tokens from various networks, including Bitcoin and Ethereum, with tokens from other networks. To trade cryptos, such as Bitcoin and Ethereum, traders and investors use decentralized exchanges, which are unable to facilitate the operation on native networks.As a result of its interoperability, THORChain enables users to directly exchange different cryptos without ever leaving the protocol and without requiring the use of any intermediaries. By depositing cryptos into the THORchain decentralized exchange, users can earn a yield on their money.

ThorChain is a decentralized liquidity network that offers a type of interoperable blockchain, allowing users to transact across multiple chains without holding a central wallet. ThorChain is a unified exchange of inter-blockchain data. By using it, you can exchange cryptocurrencies across multiple networks like Bitcoin, Ethereum, Binance, etc. This unique feature of Thorchain architecture allows users to trade cryptocurrencies without transforming them or wrapping them (ETH -> WETH or BTC -> WBTC).

How to Earn LP Rewards?

Staking refers to locking up your assets in a smart contract. The purpose of staking tokens is typically to generate interest (yield) or to support a protocol’s governance.In order to collect fees from other users, liquidity providers stake their assets in pools.

  • Stakers : It should be noted that shareholders earn their fees primarily through block rewards, so they are not necessarily exposed to market risks.
  • Liquidity providers  : Liquidity providers earn commissions proportional to the amounts they stake. If you stake 100 tokens in an exchange pool that has a total of 1,000 tokens, you own 10% of the pool. The fee charged by an exchange is 0.3%, so you will get 10% of the 0.3% fee. As a result, when $10,000 is traded, you get $3. Investors in limited partnerships are susceptible to market risks, and a large divergence in the total value of their assets can result in funds being lost.

From the graph below, we can see the weekly swap volume for the past 6 months as well as the LP Rewards. SwapVolume(usd) reached a maximum of 671.4M on April 4, 2022. The trend of Swap Volume(usd) is upward. On March 14, 2022 and March 28, 2022, the total swap volume(usd) is higher than usual. During March 28, 2022, the maximum LP Rewards were observed to be 2.31M. There is an upward trend for LP Rewards. Despite the fact that swap volumes and LP rewards seem to be correlated here, both are related to one another. In other words, whenever swap volume increases, the LP rewards also increase accordingly.

As shown in the below graph, we can see the number of swaps by pool. BNB.BUSD pool accounted for the largest number of swaps in all of these pools. Additionally, our data shows that TERRA.UST, TERRA.LUNA, BTC.BTC, ETH.USDC, ETH.ETH, and ETH.USDT will all see a significant increase in swaps starting March 2022. BNB.BUSD pool  contributed to over 40% of total swaps. At first, there were few swaps, however, from March 2022 on, we can see an increase in swaps from pool to pool and, in the same period, we can see an increase in swaps from different pools as well. 

Below is a graph showing the number of unique users by pool. Out of all these pools, BNB.BUSD accounted for the most users. Furthermore, we can also see that the pool TERRA.UST is popular among many users since March 2022. Furthermore, there will be significant increases in the number of users of the pools TERRA.LUNA, BTC.BTC, ETH.USDC, ETH.ETH, and ETH.USDT starting March 2022. Users of the BNB.BUSD and BNB.BNB pools made up over 37% of the total. As of March 2022, there were few users, but since then there has been an increase in unique users from pool to pool, as well as an increase in users from different pools. 

As a result of the above analysis, we can conclude that swap volumes and LP rewards are correlated; both appear to be connected. In other words, anytime the volume of swapped items increases, the LP rewards also increase accordingly. From March 2022 onwards, the number of unique users, along with swaps, are also expected to increase.

References: https://thorchain.help/stakers-liquidity-providers

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