With DeFi getting into a more mature, stabilized state, many potential investors find themselves wondering where do these high return percentages come from.
We reached out to AdEx Network to ask them about this - in a recent article about AdEx we mentioned that their staking annual percentage yield (APY) has consistently remained above 50%. Naturally, we were curious about the source of these APY rewards, and the AdEx team was happy to explain.
“There are two main streams for the APY rewards on the AdEx staking portal: new token issuance and validator fees,” explained Ivo Georgiev, CEO of the company.
Issuance APY works by minting new ADX tokens. At a first glance, this may lead to the impression that new issuance may create inflation. However, because it’s concentrated on staked ADX, the newly minted tokens essentially transfer value from non-stakers to stakers. This is now even easier to implement as staking rewards are automatically compounded (i.e. automatically added to the staking bonds) rather than giving stakers the choice between withdrawing and re-staking.
In addition to this, since staking rewards are substantial, this further incentivizes stakers to keep them locked up. Georgiev further commented:
“Ever since we launched AdEx staking, the amount of newly locked ADX has always exceeded the number of minted tokens. This approach will remain sustainable until the point where the maximum supply of ADX is reached,”
Every campaign on the AdEx Network ad platform must have a couple of validators assigned. Validators are essential for the proper functioning of the platform, as they are responsible for tracking ad impressions/clicks, and for cryptographically signing confirmations of the impressions/clicks/earnings.
Validator fee APY works by distributing validator fees to stakers, and this is sustainable in the long run. Currently, validator fee rewards are used to buy ADX and distribute it to stakers, ensuring a positive feedback loop for the ecosystem.
Many DeFi products offer yields that are incredibly high but only hold for a few days or weeks at most. AdEx Staking has consistently provided > 50% APY for almost a year now.
ADX is a token of limited supply, and that limit will be reached eventually. The AdEx Network team is positive that by the time this cap is reached, the company’s ad network and ecosystem would have grown sufficiently to sustain high APYs through validator fees. Even if their annual yield falls to 10%-20% in a few years, it would still remain attractive for ADX holders due to its excellent sustainability/yield ratio.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.