Updated: Nov 19, 2021
DeFi Kingdoms is a blockchain game, DEX, and NFT platform (all in one!) on the Harmony blockchain that I am particularly bullish on. This is the first of two Reddit posts I made: 1st post: https://www.reddit.com/r/DefiKingdoms/comments/qt6qqu/understanding_tokenomics_when_to_harvest_with/ but also wanted to share this here.
I also created a second follow-up post, examining waiting til the last Epoch based on requests to pull forward the analysis to the long-term. This reaffirmed my position, demonstrating the power of reinvesting vs waiting til the last Epoch, which several DFK users messaged me that they had been doing. https://www.reddit.com/r/DefiKingdoms/comments/qxymtz/update_understanding_tokenomics_when_to_harvest/
Below is the Reddit post:
In each subsequent Epoch in DeFi Kingdoms, the percentage of Jewel harvested that is locked decreases (more unlocking over time). This leads to the question: should farmers wait until the next epoch to increase their unlocked Jewel, or should they constantly harvest to reap the benefits of compounding?
We took a look at the tradeoff, Our conclusion is that long-term holders should reinvest daily while those who only care about unlocked JEWEL should generally wait until the next Epoch. Model is available upon request, or public if the subreddit allows Drive links.
What Are the Inputs?
We used the current APR on the Jewel/ONE liquidity pair and current pre/post Epoch locking rates.
How does the Model Work?
We looked at two scenarios:
Waiting til Next Epoch
Under the first scenario, each day the harvest rewards are reinvested into the same pair, generating the benefits of reinvestment. However, each harvest follows the locking rate at that given point in time (e.g. if Epoch is in the next 3 days, three days worth of harvest are locked at 75% instead of 73% if you waited three days).
Under the second scenario, harvest rewards accumulate until the next Epoch date (and hence unlocked at the lower locking rate).
A summary of the resulting economics are included below, assuming a 8-day period until the next Epoch:
Assuming next Epoch in 8 days
Unsurprisingly, waiting until the next Epoch (in 8 days under this scenario), results in higher unlocked JEWEL, but less locked JEWEL. Depending on your strategy, investment horizon, and views on JEWEL price, this may be advantageous or disadvantageous.
Other Points Not Considered:
- JEWEL and pair price assumed to be stable: harvesting and reinvesting allows you to de-risk into other assets when selling half into a pair
- Doesn't include transaction costs (negligible on Harmony chain)
- Doesn't take into account xJEWEL or other strategies within DFK (wishing well, buying heroes, xJEWEL)
- Assumes inputs held constant (APR constant)
- If you are a long-term holder: reinvest daily - reinvesting daily results in highest JEWEL accumulation (locked + unlocked)
- If you only care about unlocked jewel: wait until next Epoch if next Epoch is less than ~18 days away (otherwise, reinvest daily)
- The longer your investment horizon, the more beneficial reinvesting daily is
Appendix / Outputs:
Day 10: $100 more unlocked JEWEL for waiting, but $1,100 less locked JEWEL; preferable to reinvest daily if you feel strongly about JEWEL in 2022