# APY Calculation

***

#### Understanding ELPP Returns

ELPP measures **Annual Percentage Yield (APY)** based on changes in the pool’s collateralization ratio over time. This standardized metric helps users see how their investments might grow annually, assuming current trends continue.

***

#### The Formula

$$
\text{APY} = \left( \frac{\text{Coll}*{T1} - \text{Coll}*{T0}}{\text{Coll}\_{T0}} \times \frac{365}{T1 - T0} \right) \times 100%
$$

**Where**:

* Collₜ₀: Collateralization ratio at the starting point.
* Collₜ₁: Collateralization ratio at the ending point.
* T₀ and T₁: Timestamp values in days.
* T₁ - T₀: Number of days between measurements.

***

#### Example Calculation

Imagine you measure the pool’s performance over a 30-day period:

* **Starting Date** T₀: January 1, 2023
* **Ending Date** T₁: January 31, 2023
* Collₜ₀: 1.000
* Collₜ₁: 1.006
* ΔT: T₁ - T₀ = 30 days

Plugging these values into the formula:

$$
\text{APY} = \left( \frac{1.006 - 1.000}{1.000} \times \frac{365}{30} \right) \times 100%
$$

$$
\text{APY} = (0.006 \times 12.17) \times 100% = 0.073 \times 100% = 7.3%
$$

Hence, if the same growth persists for a year, the annualized return would be about **7.3%**.

***

#### Important Considerations

* **Historical Indicator**: APY reflects past performance and doesn’t guarantee future returns.
* **Market Events**: APY can vary significantly during periods of high volatility or extreme market conditions.

***

#### Summary

APY serves as a convenient measure of annualized returns, giving liquidity providers a clearer idea of potential growth within the ELPP.<br>


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