The Economics of Holding SIM Power vs the HIVE/SIM Liquidity Pool

in #dcitylast year (edited)

Recently, the holding rewards for SIM have been sky-high. In light of this, I wanted to make a comparison post between different investments in Dcity.

In this post I will analyze the tradeoff between contributing to the SIM:HIVE liquidity pool vs. holding SIM power. In future posts I will be analyzing the economics of certain cards and buying off market vs. buying bulk.

If you are not familiar with the mechanics of SIM power and rewards, I recommend reading the "Government & Taxes" section of https://dcity.io/info

As per the time of this post, you get a 26% reward for your holdings in the liquidity pool. In the liquidity pool, half of your holdings are in SIM and half in HIVE.SWAP. This means that even while you are earning 26% ROI, your SIM holdings will still count towards your SIM power and earn you extra income! To know how much this is worth, we have to know the ROI of simply holding SIM power.

We can see that as of this post, there is a ~416 HIVE reward pool distributed across ~161 million SIM power. For ease of calculation, let's assume a constant conversion rate of SIM equal to 880 SIM/HIVE. Now let's convert these into the same unit at 416*880 = 366080. Then we divide this by the principal to get an ROI of 0.227% per day, which is equal to 83% per year.

So you might be thinking it makes more sense to just hold everything in SIM power. However, you should also note that SIM power is illiquid in that it takes the 30 day trailing average. What this means is that if you are only investing for a short period, you will get better returns if you put your HIVE into the liquidity pool instead of holding SIM power.

So I graphed both of these investments. The formulas only work for anything below 30 days. The red line represents SIM power while the green represents the SIM liquidity pool. The x/30 represents the proportion of accumulated SIM power to current SIM. The x/60 represents the same thing, except taking into account the fact that only half of it is held in SIM.

I will note that the formulas are somewhat inaccurate because they do not take into account any changes (like inflation) after staking happens, and does not calculate the trailing average for daily compounding interest (only for the starting principal). Here is the screenshot:

Screenshot(10).png

Like I said, the formulas are simplistic and do not account for lots of factors, so this break-even point may change. But we can be quite sure that if you are investing for less than 15 days, the SIM liquidity pool is a better option.

I personally believe the HIVE reward pool ROI will go down soon as it is reaching it's limit of 600 and more people are investing SIM power.

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I hope this has been a helpful educative comment.

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Check out the last post from @hivebuzz:

Hive Power Up Day - October 1st 2021 - Hive Power Delegation
Hive Power Up Month - Feedback from Day 25

I am sure I am doing it wrong, but I am pushing to hold as much SIM as I can on Hive Engine... the 30 day average is painful, but at least it is still liquid and I don't have to unstake it over 4-6 weeks like other tokens. My original goal was 1M, but now that I am closing in...I want more!! !BEER


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SIM holding ROI has definitely gone down in the past few weeks. What do you mean there's a limit of 600?

Posted using Dapplr

The daily holding rewards pool is not allowed to cross 600 HIVE