Glossary

Annual Percentage Rate (APR)

APR - Annual Percentage Rate is the rate of interest paid on a loan or annual return on investment. The annual percentage rate represents the actual cost of the loan to be paid each year. It includes all transaction-related fees but is not compounded.

When users see the APR, they can immediately calculate how much profit will be earned at the end of the year. This profit comes from their staking or farming, so it only needs to be done at the beginning to get results for APR interest.

Annual Percentage Yield (APY)

APY - Annual Percentage Yield is the effective annual return, taking into account the effect of compound interest. Unlike simple interest, compound interest is calculated periodically and the amount is immediately added to the balance. With each subsequent period, the account balance gets slightly larger, so the interest paid on the balance is also larger.

With APY, the rate will be divided by 365 days. Repeat this operation daily or monthly during the farming cycle and users will have the final total APY ratio.

*Formula to calculate APY: APY = (1 + r/n)^n – 1

r is the periodic rate of return (referred to as the annual APR).

n is the number of billing cycles in a year.

Automated Market Maker (AMM)

Automated Market Maker (AMM) is an automated market maker and usually works on decentralized exchanges (DEX), where everything happens automatically without human intervention. Decentralized AMMs are usually based on mathematical formulas to define the value of a Token.

AMM has many different trading pairs but there are no buy or sell orders, and traders do not need to look for buyers. Instead, a smart contract will act as an executor in a transaction

Amplification Factors (AMP)

AMP amplifies the real balances to virtual balances - the biggest advantage of AMP.

The balance in the pool is calculated according to the virtual balance with the AMP multiplier therefore, AMP protects the pool from being manipulated by anyone holding too much LP. Virtual balance also reduces slippage.

Higher AMP, more capital efficient in a particular price range. This means that with the same liquidity pool and trade size, DMM can provide much better liquidity and slippage than AMM. Higher AMP is recommended for more stable pairs, lower AMP for more volatile pairs.

In EF 1.0, AMP only applies to the USDT/BUSD pool and defaults to 2.

Base fee

When traders swap, the transaction fee will be determined on a base value, which fluctuates according to network congestion. Base Fees are calculated based on the value to be paid to make a transaction at the time a block reaches 50% of its capacity. If the block is exceeded, the base fees increase, otherwise it will decrease. This mechanism helps parties like Metamask to automatically determine transaction costs, rather than pushing the determination to the user.

In Evry.finance 1.0, Base fee ratio 4:1 for pool and platform wallet. Base fee will have a decrease or an increase depending on market fluctuations.

Decentralized exchange (DEX)

DEX is a decentralized exchange that allows users to trade cryptocurrencies without relying on an intermediary. DEXs do not control their funds. Instead, every transaction takes place person-to-person, through an automated process.

Dynamic Market Market (DMM)

DMM Smart Contract was initially introduced by Kyber Network. It is an improvement of AMM to optimize capital efficiency and increase profit earned for LPs. The advantage of DMM over Curve Finance is that DMM can be applied to all cryptocurrencies with a model with 2 parameters: Amplification Factor and Dynamic Fees.

Dynamic Fee

High fees benefit providers, keeping them safe from market volatility and intended to limit arbitrage.

Low fees support traders in transactions, to encourage trading and stimulate the market.

Dynamic fees overcome AMM's use of a simple Fees model that fixes a percentage of fees despite market fluctuations.

ERC20

It is the name of a set of standards that tokens developed on the Ethereum blockchain must follow.

Liquidity Provider (LP)

Liquidity, which refers to the degree of liquidity (also known as fluidity) of any product/asset that can be bought or sold in the market without its market price being affected. Liquidity Provider (LP) – a liquidity provider, also known as a market maker. If the trader sells, the LP will buy and if the trader buys, the LP is ready to sell to the trader.

Protocol fee

The fee settler is able to set up to a maximum of 20%. The protocol fee is not paid by traders, but when liquidity providers add or remove liquidity to/from a pool. Updates to the protocol fee are done through the factory contract and affects all deployed pools.

Slippage tolerance

Slippage is the difference between the expected price and the execution price of a trade.

There are 2 main reasons leading to slippage tolerance, when the market fluctuates strongly (when many investors compete for orders) and when the market is not liquid enough: liquidity on AMM is based on Pools, if liquidity is at those pools are so small that users want to trade a lot, liquidity will definitely decrease very sharply.

In Evry.Finance 1.0, Amplification (AMP) helps to multiply the value in the pool into a virtual balance to reduce damages of slippage.