Increasing the APY for your holders
When you’re doing native staking: you pick a validator to delegate your SOL to and get rewards every ~50 hours
When you’re liquid staking: there is a « middleman » between you and the validator, called a stake pool. When you do liquid staking: you send SOL to the stake pool and get LST in return, just like LP tokens.
When the stake pool is getting rewards every ~50h, the total amount of SOL that is backing the LST increases and the price of the LST increases too as a result
When you send SOL to the reserve stake account, the SOL that is backing the LST also increases, which is how you can artificially pump the APY because of the way we calculate it, detailed below
We use the calculation method below for the APY displayed on the Sanctum website:
Let’s consider nordSOL, a validator LST on Sanctum with 10k stake and 14% APY at the time of writing
The only validator nordSOL is delegating to is Nordic Staking with a 8.52% APY according to Stakewiz so where does the extra APY come from?
Since their validator stake is higher than their LST stake (200K+ vs 10K), they can redirect native stakers rewards to LST holders instead of keeping them. Although not sustainable, this is a strategy that can work to attract initial (mercenary) stake.
This is the epoch rewards they're getting from their active stake.
This is the reserve stake account from nordSOL with transfers from their identity account.
They send SOL once per epoch to inflate the APY and for the past 5 epochs, rewards have been ~3 SOL
5 SOL per 10K SOL stake equates to a 8.5% APY and if you add 3 SOL on average like they’ve been doing, you give almost 5% extra, which is close to the 14% nordSOL is showing on Sanctum
Obviously this is napkin math but TLDR: if your base APY is 7% and you want to target 14%, you need to send to the reserve the equivalent of the last known epoch rewards, roughly, assuming your stake is constant.
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