๐Ÿ’ฐ1.5. Rewards

This header discusses the number of rewards from the perspective of the individual user. Please read 1.3. Inflation & deflation to get a better understanding of where the rewards are coming from and know what is meant by โ€œhistoric supplyโ€.

Rewards from inflation are paid solely to shareholders. The rewards percentage yield for all the shares combined decreases when more CDP is deposited.


Letโ€™s say that the circulating plus historic supply is 100 CDP, and 1 CDP is deposited. With an inflation of 4.32%, this means that the annual inflation is 4.32 CDP. However, those 4.32 CDP are paid to the deposited one percent of the circulating plus historic supply. The reward equals 4.32 CDP for each CDP burnt. This translates to an annual percentage yield of 432%.

Now letโ€™s say the historic supply is 100 CDP and 50 CDP is burnt. The reward equals 4.32 CDP per 50 CDP burnt. The reward for each CDP burnt = 50 / 4.32 = 0.0864 CDP. In this case, the annual percentage yield is 8.64%.

The examples above do neither include the shares bonus when compounding rewards nor the dilution of shares.

Users are rewarded with 1 share for each CDP they deposit and burn. However, an additional 0.3 shares are generated. This means that the actual Annual Percentage Yield (APY) could be lower by a factor of up to 1.3. Shares assigned to the auction program are included in the calculation for inflation; but are left out of the calculation for rewards. Because the number of shares assigned to the auction program is variable, the exact dilution factor cannot be calculated ahead of time.

If all CDP is burned, the Annual Percentage Rate varies from 3.32% (when all the generated shares are assigned to users, dilution factor 1.3) and 4.32% (when none of the extra shares are bound to users, but idle in the auction program).

Users are allowed to create their own strategies. Rewards per share decreases if the ratio of CDP burnt compared to the circulating plus historic supply increases. At the same time, CDP becomes scarcer as a whole when it is getting burnt. It is very unlikely that theoretical minimums and maximums are reached in practice.

Shares increased via the compounding function yield more rewards for the same amount of CDP due to the share boost, which is further described in 1.7. Compounding. Including this function in the calculations would get complicated, and the outcomes would be unpredictable in practice. Therefore, this function was not included in the calculations. This means that โ€œin theoryโ€, the maximum rate and yield for a user is higher with this function included.

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