KyotoSwap Reward Management System for a Stable LP Farming APR

Yield farming with LP (Liquidity Provider) tokens has been a staple of DeFi. You supply (usually) equal amounts of two tokens and receive LP tokens to represent your deposit. The LP will earn LP rewards from trading just for holding them but the real rewards come from farming the native token of the farm.

Yield farming can be profitable albeit risky and that risk varies depending on the farm you are depositing in and the volatility of the tokens.

The APR earned in the farm is made up of the LP rewards from trading fees where users swap between the two tokens in the LP pair and the farm rewards or additional incentives paid in the native farm token.

The APR can go down if the farm token you are earning goes down or the value of the LP pair increases or more people deposit more funds into the same farming LP pair as you are in.

As the APR goes down some users will remove their LP and chase higher APR's elsewhere and when the APR increases more people will 'Ape in' reducing the APR and thus the rewards you are earning.

KyotoSwap solves this problem by fixing the APR you receive in the farm. The idea is to promote consistent rewards and reduce farm hopping.

You can deposit your LP in the farm and the APR will remain consistent so you know how much you will be earning over time.

Reward Management System

To maintain a steady APR the team at KyotoSwap use what they call an RMS or Reward Management System. On a daily basis the emissions are automatically adjusted to maintain the fixed APR.

At the time of writing the KyotoSwap farm receives 2.0128 tokens per block which is used to upkeep the APR's. Any tokens not emitted from that block are burned so they never become part of the supply.

In theory the 2.0128 tokens per block should comfortably cover the TVL locked in their farms.

How the RMS benefits You

As an LP farmer you benefit from a consistent APR that will not go down over time. So if more people deposit into the same LP farm as you or the price of $KSWAP goes down you will still earn the same level of rewards in dollar terms.

If the dollar value of your LP goes down you will earn less in dollar terms but the reward APR will still remain constant. Conversely if the dollar value of your LP increases you will earn more in dollar terms.

The dollar value of your LP is the same as the dollar in a bank account earning interest. The more dollars you have in your account the more dollars you will earn but the APR will remain the same.

Are There Any Downsides?

The LMS would be able to maintain the current APRs if the TVL increased to the ten of millions. The TVL is currently under a million. The TVL would need to increase significantly for this to become an issue.

For context KyotoSwap is in position 111 on DefiLlama's TVL rankings for BSC so they would need to become a top 25 Dapp before the RMS faced issues.

If the price of $KSWAP increases you will not see the usual gains in APR. However on the flip side you are not exposed to lower APR if the token price decreases.