Introduction

In decentralised finance (DeFi), the performance of a liquidity fund is one of the most important metrics when choosing where to deposit your funds. When an investor wants to enter a DeFi project, this statistic is one of the things he looks at. However, measuring the performance of a liquidity fund is a difficult task due to many contributing factors. The way to calculate the "APR" or "APY" in Defi is not standardised and is often opaque and obscure.

THORChain is one of the most booming platforms in the DeFi world today, and therefore needs such metrics. Previously, liquidity pool returns on THORChain were calculated as the amount of commissions and rewards that accrued in the liquidity pool over a 7-day period, reflected as an annualised percentage gain of the total depth of the pool. However, this calculation had its limitations, such as the fluctuation of RUNE within subsequent 7-day time periods attributable to asset price changes and volume spikes, which impacts THORChain's efforts to attract long-term liquidity providers. In addition, the introduction of THORChain's synthesisers adds another dimension to the performance calculation that was not incorporated in the previous version of the APR.

To address this, THORChain has implemented an improved method for calculating the yield of a pool, called the Liquidity Unit Value Index (LUVI). LUVI is a summary value to represent the value of a Liquidity Unit in THORChain. It is more accurate to reflect the performance of the pool as the change in LUVI over a period of time - bearing in mind that since the asset ratios in liquidity pools during the 100-day window affect this calculation, it differs slightly from the methods used by most WMAs.

Methodology

This dashboard has been created to take an overview of the Liquidity Unit Value Index (LUVI). The idea is that reader is able to see all LUVI pools and other interesting metrics with custom time intervals. For this reason, there are three main buttons in the upside of the dashboard to be filled by the reader,

• Granularity: could be day, week or month. The data will be display in a daily, weekly or monthly basis.

• Starting date: the date when the specific studied period starts (YYYY-MM-DD format).

• Ending date: the date when the specific studied period ends (YYYY-MM-DD format).

  
  Attention: Press the “Apply All Parameters” button above after all parameters were choosen. \n

Please, take into account that for timeframes below 30 days, the Annualized APR cannot be displayed.

In essence, Pool Units are the underlying accounting unit used in THORChain pools. When a Liquidity Provider adds assets to a pool, its position is summarised as a balance of Liquidity Units, i.e. a unit representing a share of the underlying assets within the Liquidity Pool. Similarly, when Synths are minted, the Synths' position is summarised as a balance of Synth Units within the pool. The Pool Units would therefore be the sum of the liquidity units and the Synth Units.

By measuring the value of each pool over time using Pool Units, the performance of the pool can be annualised to provide a clearer picture of pool performance for Liquidity Providers.

Why is LUVI useful? The major benefit of having a metric such as LUVI is that it not only provides a fair and comparable value for end users to see the performance of a pool, but it also serves as a measure of increases and decreases in the value of liquidity units, and gives a summary of the increase and decrease in the value of a single Liquidity Unit.