How do rewards work in Yield Farming and Staking? Animal Farm, specific!

by CryptoJester

One of the most puzzling concepts in yield farming to learn is the way that rewards are given in Yield Farming and Staking. The reason for this is because the rewards happen completely behind the scenes. All you see what you look on a yield farming site is APR (or APY in some cases). But where do the rewards come from and how does your deposited token amount contribute to how many reward tokens you get? Look no further! And please follow me!

If you have questions about yield farming in general (including LP tokens), check out https://readmedium.com/how-does-yield-farming-work-in-the-animal-farm-dc6bc54f790

And, the warning signs to look out for while yield farming (and how to protect against them!) https://readmedium.com/new-to-yield-farming-heres-how-to-avoid-getting-rekt-3a4efd98e6cb

But first, if you haven’t added a referral to your Animal Farm, please consider adding me. I work hard to write articles that detail the inner-workings of yield farm platforms and your small contributions can help sustain my writing. Also, if there’s a topic you’d like me to write about regarding yield farming or the Animal Farm, reply to this and let me know!

Please use this link to access the Animal Farm: https://theanimal.farm/referrals/0x15A6429C32b3C1cd03b427f80D5170690d1f7061

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Let’s get started!

Where do rewards come from?

• This is the first question most people have regarding yield farming and staking. Smart investors deposit their tokens (either LP tokens or single-asset) into farms or pools, and enjoy watching their rewards begin to accumulate. But where do they come from and how is the amount calculated?
• The rewards are released by the farming/staking site. Every farm and pool has a given amount of rewards released per week. For example, the BTCB-ETH pool on Pancakeswap releases 4,787 CAKE per week. That amount is completely released every week, and awarded proportionally to all the investors in that pool. So, if 4,787 CAKE is released a week, then 0.474 CAKE is released per minute, given proportionally to the investors in the pool. If you have invested 100% of the amount in that pool, you earn the whole thing. If you have invested 50% in that pool, you would earn half of the CAKE in that minute. Most mortal investors invest less that 0.01% of any given pool, which is why rewards take days/weeks to add up.

• However, some pools and farms are given a boost by the platform. The aforementioned BTBC-ETH pool is labeled as a “1x” pool, which means it uses the standard CAKE reward every week. If you go on Pancakeswap, you can see some pools have different multipliers attached to them. This means that the amount of rewards alloted are multiplied accordingly. The CAKE-BNB farm has a 40x multiplier, which means that it allocates 40 TIMES the amount of CAKE as the BTCB-ETH farm, or 191,488 CAKE per week (18.9 CAKE per minute). Thus, the multiplier determines the amount of rewards released to investors for that pool.
• So, it would seem that it would be 40 TIMES better rewards for the CAKE-BNB farm. However, the amount of investment in the pool is significantly higher, so a $1000 investment in the CAKE-BNB farm would be less percentage than it would be in the BTCB-ETH farm. That’s where the APR comes in. It does the math for you, showing you what your return would be.
• APR (Annual Percentage Rate) reveals what the farm would return to investors if the current total investment amount, the current reward release rate and multiplier, and the current reward token price stay the same. In other words, unlike a credit card or a bank statement, APR in crypto is usually changing, based only on current conditions. If the total investment amount goes up, but the total rewards per week stay the same, the APR will go down. If the current reward multiplier goes up, the APR goes up. If the price of the reward token goes up or down, the APR goes up or down.
• You may be here because of your interest in the rewards on the Animal Farm. As of this writing, here are the expected reward multipliers on the Animal Farm (based on multipliers used in TheManor.farm):

• Dynamic Emissions! One of the many innovations that TheAnimal.Farm will have is dynamic emissions. Most yield farms have a static emission rate (as described above). TheAnimal.Farm will have a dynamic rate. In essence, this is to correlate the demand of DOGS with the supply of DOGS. When demand is high, DOGS price will be at a high, and the supply will be increased. When demand is low, DOGS price will be at a low, and the supply will be decreased. All of this is designed to create upward price pressure. Just one of the many innovations on TheAnimal.Farm designed to keep the price up! The only way to increase or decrease supply is to change emission rates. At high demand, emission rates will increase. At low demand, emission rates will decrease.
• If you have found this guide helpful, please consider using my link as a referral to TheAnimal.Farm. It costs you nothing and helps me to sustain my writing!
• Please use this link to access the Animal Farm: https://theanimal.farm/referrals/0x15A6429C32b3C1cd03b427f80D5170690d1f7061
• Don’t yet have DRIP? You need a buddy! Use me! I’m working hard to build and support my DRIP community!
• https://drip.community/faucet?buddy=0x15A6429C32b3C1cd03b427f80D5170690d1f7061