Ever since the announcement of the community pool burn, there's been a lot of speculation as to what exactly the post-burn staking APR is going to be. I've heard 5X, 11-24%, over 10% and so on. With the burns having commenced, a clearer picture is forming. A π§΅...
We can see the burns happening here finder.terra.money, in increments of 520K $LUNA.
But converting that much $LUNA to $UST at the roughly $50 it's been trading at should produce $26M UST, so why are the transactions actually producing around $16M-17M $UST?
If you look at any of the transactions, for example this one finder.terra.money ... you'll see the other $9M or so being sent to terra1jgp27m8fykex4e4jtt0l7ze8q528ux2lh4zh0f
That address is actually the oracle module, and is responsible for receiving and distributing swap fees. That's right, each burn is incurring around 36-37% in swap fees π±!
So now, time for some quick math. We are burning 88,675,000 in $LUNA. And paying say 36.5% in swap fees. At $50 per $LUNA, we are looking at $1.618B in UST in fees to be distributed to stakers π€― !
With gov proposal 133, the distribution window for swap fees was set to 2 years, which means 809M in fees will be paid out each year from the burn. So that's the numerator, let's get the denominator
According to Terra Station, there are 333.6M $LUNA staked right now, which at $50 amounts to $16.68B in value. Almost there...
So .809B / 16.68B = 4.85%. This means the burn will add another 4.85% APR to the existing APR which have lately been hovering in the 3-5% range. So, I would expect 8-10% APR once the burn is complete.
What could change this? For one, the swap fees are in UST, so if the price of $LUNA in increases, the incremental APR from the burn will decrease, and vice-versa. And of course, the more $LUNA is staked the lower this APR will be, and vice-versa.
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