APRs Explained
Annual Percentage Rate (APR) represents the potential yield you can earn when participating in Hydro. In Hydro, APR consists of multiple components that reflect different sources of rewards for ATOM stakers. Understanding these components helps you assess your expected returns when locking ATOM and voting for liquidity allocations.
Hydro displays three key APR metrics:
- Staking APR – The standard inflationary reward you already earn from staking ATOM, securing the Cosmos Hub.
- Voter APR – The additional yield from tributes paid to voters by bidders seeking liquidity through Hydro.
- Total APR – The yield generated by liquidity deployed into DeFi protocols, plus the voter APR, which benefits the Cosmos Hub community pool.
These APRs fluctuate based on market conditions, bidder incentives, and liquidity deployments. Below, we break down the APRs specific to Hydro in detail.
Voter APR
Average APR
The Hydro bids page displays the average APR available to Hydro voters. It is calculated by dividing the dollar value of the sum of all available tributes posted during the active round by the total dollar value of the locked voting power in Hydro. The exact formula is:
Note that this average APR may change drastically throughout a round:
- It will increase if bidders increase their tribute
- It will decrease if more voters lock and vote for bids
It also may not match your user-specific APR, which is based on the bid bid you’ve selected, specifically, the tribute attached to the bid and your share of the voting power supporting the bid. The user-specific APR number is not currently displayed in the Hydro interface but will likely be added later.
Keep in mind that the Average APR is very dynamic. It is a snapshot at a particular point in time. The APR changes as more users vote or lock their ATOM or as bidders increase their tributes. It is nearly guaranteed that you will have an APR that is more or less than the number displayed.
Some bids use points rather than tradable tokens, which can influence the APR. The APR calculation assumes tributes are paid in tokens that can be traded or sold.
Historical APR
After the first pilot round, Hydro will start displaying historical APRs. These will likely give users a more realistic view of the expected end-of-round performance. The historical APR is calculated based on the average Hydro voter APR of the last round. The exact formula is:
The interface will display APRs based on the last month, the last three months, and the last year.
PoL APR (Protocol-Owned Liquidity APR)
In addition to staking APR and voter APR, PoL APR is another essential component of rewards in Hydro. It represents the yield generated by liquidity deployed into various DeFi protocols through Hydro’s auction system.
How PoL APR Works
When liquidity is deployed, it can generate yield in different ways, such as:
- Swap Fees – If the liquidity is provided to a decentralized exchange (DEX), Hydro earns a portion of the trading fees.
- Lending Interest – If the liquidity is deposited into a lending protocol, it accrues interest from borrowers.
- Incentives – Some protocols offer additional incentives, like governance token emissions or liquidity mining rewards.
PoL APR is a community benefit rather than a direct voter incentive. Rather than distributing this yield to individual voters, it’s collected by Hydro to be redistributed to future Hydro bidders or back to the Cosmos Hub’s community pool. Future updates to Hydro may enable sharing of the PoL APR with Hydro voters.
Example of PoL APR in Action
Let’s say Hydro deploys 10,000 ATOM to a lending protocol at an average yield of 8% APR. Over a year, this would generate 800 ATOM in revenue, which would be returned to Hydro to be redistributed to future Hydro bidders as additional liquidity or back to the Cosmos Hub’s community pool.