How are rewards accrued?
When you enter a specific Lending service, you are exchanging your crypto assets for shares that represent your pro-rata ownership of the crypto assets that are in each pool.
The conversion will be done based on an exchange rate between the number of shares issued to all users and the total assets in each pool. The exchange rate is calculated at settlement time, when rewards are accrued to the total assets in each pool.
For Lending services (and similarly most Bake Earn services), we will no longer distribute rewards in the form of transaction line items. Instead, it will be accrued to the exchange rate.
Example scenario
Initial entry after processing start of term (Day 1):
👉 10,000 USDC = 10,000 share (1 USDC per share)
Current value: 1,000 USD (1 USDC = 1 USD)
Rewards settled at end of current term into exchange rate (Day 7):
👉Your 10,000 shares are now worth 10,015 USDC (1.0015 USDC per share)
Original stake: 10,000 USDC
Accrued rewards: 15 USDC (7 days of 7.82% APY)
Current value: 10,015 USDC (assuming 1 USDC still = 1 USD)
At the end of the first year (Day 365) assuming no new entries or exits:
👉Your 10,000 shares are now worth 10,782.14 USDC (1.078214 USDC per share)
Original stake: 10,000 USDC
Accrued rewards: 782.14 USDC (assuming 365 days of constant 7.82% APY)
Current value: 10,782.14 USD (assuming 1 USDC still = 1,000 USD)
When you exit and we process your exit (Day 365):
👉You redeem 10,000 shares for their current USDC value
If you redeem after 1 year, you’d receive 10,782.14 USDC
This is when the rewards accrued (782.14 USDC) into the USDC/share exchange rate may become a capital gains taxable event depending on your tax residency