The Ayin to xAyin coefficient: what it means and how it works

Since I released my Ayin valuation model one of the most frequent questions I get is about the xAyin coefficient (α). Since α gets more complicated to explain as it grows I think this article is a must read for anyone dipping their toes into Ayin wanting a complete understanding of xAyin.

xAyin interface with the Ayin-xAyin coefficient α circled in red

When you first sign in on Ayin and try to join the single stake xAyin pool you will see the interface above showing 1 xAyin = α Ayin ( α at time of writing is 1.3346). The value of alfa changes with time as yield accumulates but it ultimately tells you how much Ayin you can mint from each xAyin that you own at that point in time. Conversely, 1/α tells you how much xAyin you can mint for each Ayin that you own. xAyin is very important because the share of revenue that you get when you stake depends on the percentage of xAyin that you own (vs the entire xAyin in circulation). For example today there are 99534 xAyins in circulation, so if you own 10k xAyin you would be getting 10% of the Dex revenue destined to single stakers (or ~5% of total dex revenue).

How does α change?

The value of α moves up only as rewards destined to Ayin stakers are distributed and accumulated in what I will call the xAyin asset pool. We can think of this as a big pool of Ayin whose shareholders are xAyin holders (1 xAyin = 1 share). The bigger this pool becomes the higher the value backing each share is. Today this pool is continuously filled with Ayin coming from 2 sources. The first source are the dex trading fees which amount to 0.15% of the total trading volume. The second source are the Ayins from the pool of 100k AYIN that is distributed linearly to AYIN stakers in the first year after launch. As these rewards pour into the xAYIN asset pool and accumulate there the value of α goes up.

Visual representation of xAyin asset pool and the current sources of Ayin

In the beginning when Ayin launched the value of α was 1, which meant that for every Ayin that you staked you would get 1 xAyin in return. If you staked 1 Ayin when the dex launched and never touched it today you could get back 1.33 Ayin by burning your xAyin.

After the first year when Ayin rewards run out and the only source of revenue are dex fees

What happens when I mint 1 xAyin?

When a user mints 1 xAyin they must spend (ie: deposit into the pool) an amount of Ayin equal to the worth of 1 xAyin share. Since the xAyin asset pool is cumulative, ie it keeps getting rewards and fee revenue regardless of how many people are in it, the value of these shares goes up only. It is important to note that the current value of α reflects how much the value of shares has grown so far and doesn’t say anything about its future value. In fact, while today the daily volume is very low and the main source of Ayin poured into the pool are the 1st year Ayin rewards, in the future even more liquidity will flow into the pool from fee revenue as dex volume grows.

As assets accumulate in the xAyin asset pool α goes up. For example from 1.012 (left) to 1.3342 (right).

What determines the pace of growth of α

The first factor on which α depends is the amount of assets flowing into the xAyin asset pool. Since Ayin rewards are fixed (~273/day until August 2024), the only source of variance that can lead to quick and sudden bumps higher (since it moves up only) is fee revenue. So far, in 2 months since launch, 2146 Ayin have been sent from fee revenue into the pool. This is the yield generated by a total volume that to date has been around $250k (total). When more pairs are added thanks to the ETH and BSC bridge it’s not unrealistic to expect at least a few days of >$1M volume. Since it is unlikely for a lot of new xAyin to be minted in 1 week, the value of α should start going up very quickly once the daily average volume (~4k/day so far) picks up. As result the value of each xAyin share (~1.33 Ayin right now) will move up at a much faster pace.

Value of α moves up much faster as volume picks up even slightly

The chart above, which is approximative, shows the pace of change of α as daily volume picks up. When volume is 4k/day (like today) it takes α 5 months to double. At 10k/day average volume it doubles in ~3 months and at $40k/day volume it doubles almost every month. The take home message here is that in 12 months, if we see bursts in volume that last even a few weeks α may quickly reach 3 digits because of the high speed at which assets would start accumulating in the xAyin asset pool. Today’s users however can still mint 1 xAyin with less than 1.5 Ayin, which is an indication of how early we are. Since assets in the pool are cumulative, I think xAYIN is the main and most overlooked source of upside in Ayin right now. And to wrap it up…if you’re about to mint xAYIN and came here because the coefficient seems to be too high, remember that it’s never going to get any lower because it moves up only. Anyone minting after you will have to convert Ayin into xAyin at an even higher rate 🙂

Disclaimer: This is not financial advice but prepared for informational/educational purposes only.

Disclosure: I hold Ayin.