Swap Volume Required on THORChain to Offset Emissions
Introduction to THORchain Rewards and Emission
- According to THORchain Docs, there are a maximum of 500m $RUNE and all 100% was created at genesis and distributed via different mechanisms.
- 220M $RUNE (or 44% of the total supply) has been placed in the Treasury to pay out to node operators and liquidity providers (LP) over the next 10 years.
- As a result, node operator and LP rewards are made up of swap fees (derived from swap volume) and block rewards (from THORchain Treasury).
Methodology
- In this dashboard, we will look at node operator and LP rewards (block rewards + swap fees) and ultimately determine how much of a multiple to current swap volume is required to offset emission from the THORchain Treasury.
- This is critical for THORchain because the ultimate goal of THORchain is to reverse the decrease in block rewards by increasing swap volume and swap fees as Thorchain matures and integrates more chains.
- This dashboard's default start date is '2022-01-01'.
- All data in this dashboard is obtained from the thorchain schema.
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The weekly RUNE distributed to Node Operator and LP averages at around 329k RUNE.
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In the first week of January, we see an increase in block rewards for Node Operators and LP.
What caused the increase in block rewards in early January?
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In December 2021, Thorchain's treasury upgrading the treasury's 120M BNB.RUNE to THOR.RUNE has resulted in nearly twice as much RUNE in the treasury.
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In order to offset the effects of increasing the reserve, emission curve was doubled resulting in a doubling of block rewards.
Why is weekly block rewards decreasing over time since the doubling in emission curve?
- The block reward formula is as follows: Block Rewards = (Reserves / Emission Curve) / Blocks per Year
- As the Thorchain reserve decreases over time due to emission, the block rewards decrease as well. For example, on the week of January 10th, the block reward was around 291K RUNE per week, and on week of September 19th, block rewards were around 258.9k RUNE per week.
Does decrease in block rewards translate to rewards to Node Operators and LP?
- However, a decrease in block rewards over time does not always imply a decrease in APY for node operators and liquidity providers because the decrease in block rewards can be offset by an increase in swap fees on Thorchain.
- As Thorchain matures and integrates more chains, it will be able to reverse the decrease in block rewards by increasing swap volume and swap fees.
- Currently, swap fees account for about 15% - 25% of Node Operator and LP rewards on a weekly basis.
Let us look at the weekly total rewards to swap fee ratio over time and the swap volume required to offset emission from THORchain treasury.
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- The line chart above shows Weekly Total Rewards to Swap Fee Ratio on Thorchain over time.
- Weekly Total Rewards to Swap Fee Ratio is an important metric because it tells us the weekly multiple difference between swap fees and total rewards to Node Operator and LP.
- It can be used to calculate the weekly swap volume on THORchain required to offset the total rewards distributed to LPs and node operators on a weekly basis.
- As we can see, weekly total rewards to swap fee ratio on THORChain peaked on the week of February 7th 2022, with a ratio of 6.857.
- Since January 1st 2022, average Weekly Total Rewards to Swap Fee Ratio is around 3.63, implying that multiple difference between swap fees collected on THORChain and total rewards to Node Operator and LP has an average weekly difference of 3.63.
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Weekly Node Operator and LP Rewards Breakdown
Weekly Total Rewards to Swap Fee Ratio
Weekly Total Rewards to Swap Fee Ratio is calculated by using the formula → total weekly rewards (in RUNE) / weekly swap fee collected (in RUNE)
Swap Volume Required to Offset Emissions
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- The combo chart above displays the swap volume on THORChain (in bar) and swap volume on THORChain required to offset emissions (in line).
- The required swap volume is calculated by multiplying the weekly swap volume on THORChain by the Weekly Total Rewards to Swap Fee Ratio on Thorchain over time, as found in the section above.
- There appears to be a significant gap between THORChain swap volume and THORChain swap volume required to offset emissions. Since January 1st, 2022, Thorchain's weekly swap volume has averaged around 177M USD, while the weekly swap volume required to offset emissions has averaged around 1B USD.
- This means that if we increase the swap volume to 5.64X, the current block emissions can be offset by the fees generated by swaps.
- Over the next 10 years, THORChain Treasury emissions will still be available to pay out to node operators and liquidity providers (LP), though in a declining trend.. As Thorchain matures and integrates more chains, it seems that THORChain is highly likely to offset emissions by increasing swap volume and swap fees.
Conclusion
- On a weekly basis, swap fees currently account for about 15% - 25% of Node Operator and LP rewards.
- The average weekly total rewards to swap fee ratio has been around 3.63, implying that the average weekly difference between swap fees collected on THORChain and total rewards to Node Operator and LP is 3.63.
- We calculate the THORChain swap volume required to offset emissions by multiplying the weekly swap volume on THORChain by the Weekly Total Rewards to Swap Fee Ratio on Thorchain over time.
- Thorchain's weekly swap volume has averaged around 177M USD since January 1st, 2022, while the weekly swap volume required to offset emissions has averaged around 1B USD.
- This means that by increasing the swap volume to 5.64X, the current block emissions can be offset by swap fees.