# Interest Accrual

## Summary

In the Stablecoin Staking Yield Vault, client returns are determined by the performance of the underlying delta-neutral SOL Strategy, and begin accruing following each deposit.

Each day, the total income generated by the strategy is translated into an Interest Rate (expressed as an annual percentage rate (APR)). The Interest Rate for each day is also translated into the [exchange rate ](https://app.gitbook.com/s/nTaVGsXJa8WE3XS6DeCF/opentrade-stablecoin-staking-yield-powered-by-figment/how-it-works/interest-accrual#exchange-rate)between USDC and vault tokens (xSOLY) which you receive following a deposit (if you deposit $100 USDC, you receive 100 xSOLY) and allow you to track the value of your position over time.

The vault also provides an indicative interest rate, which is the trailing 30-day annualised return on the strategy. The indicative interest rate is used to provide Lender's with an idea of the types of returns the vault could experience but are not a guarantee of future results.

### Calculating net client returns based on the strategy's performance

The net returns from the strategy are calculated using the following formula:

`Net Strategy Value = Long Value + Short Value - Daily Fees`

Where:

`Long Value = (Quantity of staked SOL (Q) + quantity of SOL rewards paid (R)) x spot price in USD on Day (P)`

`Short value = (Q) ×(entry price (P0)​− ( P) ) + (R ) x (entry price (P0)​− ( P) ) if hedged`

`Daily Fees = [ 0.9% x Total Principal Earning Interest + 0.2% x Long Value] / 365`

***Example:***

* *Total Principal Earning Interest (PEI): 1,000,000 USDC*
* *Entry Price in USD (P0): 180*
* *Spot Price in USD (P): 190*
* *Quantity of Staked SOL (Q): 5555.56*
* *Quantity of Rewards Paid (R): 1.5*

**Long Value** = (5555.56 (Q) + 1.5 (R)) \* 190 (P) = USD 1055841.40

**Short Value** = (5555.56 (Q) x (180 (P0) - 190 (P))) + (1.5 (R) \* (180 (P0) - 190(P))) = USD -55570.6

**Daily Fees** = 0.9% x 1,000,000 (PEI) + 0.2% x 1055841.40 (Long Value) / 365 = 30.44

**Net Strategy Value** *=* USD 1055841.40 (Long Value) + USD -55570.6 (Short Value) - USD 30.44 (Daily Fees) = 1000240.36

Valuations are made using publicly available data sourced from the exchange on which the collateral is held.

### Translating the strategy's performance into an interest rate

The interest rate is an expression of net returns as an APR.

The following calculation is used to determine the Interest Rate:

*Daily Interest Rate\* =*<br>

*(Net Strategy Value T1 -* Net Strategy Value T*0*) + Net Income\*

*—------------------------------------------------------------------— x100 - Daily Fee*

*Strategy value T0*

*\*Income refers to yield payments actually paid onto the strategy management account*

***Example:***

* *Net Strategy Value T0 = USD 1,000,000*
* *Net Strategy Value T1 = USD 1,000,500*
* *Net Income = 250*
* *Daily Fee = 0.003%*

**Daily Interest Rate =** ((1,000,500 - 1,000,000 + 250)/1,000,000) x 100 - 0.003 = 7.5%

## Exchange Rate

The exchange rate between xSOLY and USDC can be used to determine the value of a given position and calculate returns time. For more on exchange rates, read [here](https://docs.opentrade.io/stablecoin-yield/product-overview/exchange-rates).

{% hint style="warning" %}
Vault tokens (xSOLY) are purely 'receipt' tokens and are not transferrable
{% endhint %}

#### Calculation and Setting the Exchange Rate

The Investment Advisor, Five Sigma, updates the exchange rate at 9:30am GMT each day (T0).

The calculation for the exchange rate is as follows:

`Net Strategy Value / Total Vault Tokens Outstanding`

#### The exchange rate can be used to determine several important data points:

**Current value of your position in USDC (including net returns)**

```javascript
Vault Token Balance * Exchange Rate
```

**Net returns over time expressed as an absolute %**

```
ΔE =Et−Et0
```

Where:

* E<sub>t</sub> = exchange rate at the later time t
* E<sub>t0</sub>​​ = exchange rate at the earlier time t<sub>0</sub>
* ΔE = absolute change in the exchange rate

If you want the **percentage change (relative change)** instead of the absolute difference:

```json
%ΔE= [(Et−Et0) / Et0] * 100
```

*Example*

On Day 1, the exchange rate between xSOLY and USDC will be 1.00000. The collateral returns 15.00% APR in 12 months. The exchange rate after 12 months will be 1.150000, meaning 1 xSOLY can be redeemed for 1.15 USDC. When the lender redeems 1 xSOLY, they receive 1.15 USDC representing a return of their principal (1.00 USDC) and their accrued interest (0.15 USDC).