Market Price vs Fair Value
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Last updated
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All our products have a dedicated Pool Token: YLA, BSCDEFI, ASSY, YETI, and PIPT. Each pool token represents a share of the pool.
There are two different prices for each Pool Token: Market Price and Fair Value.
You can find this price on coingecko, zapper, debank, or any other aggregator. This price is sourced from the exchanges such as Uniswap, SushiSwap, or PancakeSwap.
Market prices are based on supply and demand and can fluctuate even for YLA, where each buy and sell order can affect the price. Moreover, aggregators can be slow to update their price feed.
To calculate Fair Value we use NAV (TVL) and Total Supply.
Nav or TVL - Net Assets Value or Total Value Locked. The Value of all tokens locked inside a pool (YLA, BSCDEFI etc).
Total Supply represents the total amount of issued tokens of a given pool.
Since Pool Token (ASSY, BSCDEFI etc) represents a share in the Pool, and PowerIndex.io gives you an opportunity to redeem your Pool Tokens at any point in time, we can conclude the following:
Fair Value = NAV/Total Supply
Let's go through an example:
At the time of writing, ASSY has a fair value of $1.143, and you can easily find it here.
But we can manually verify this price using simple math:
ASSY TVL = $1 985 256
ASSY Total Supply: 1 738 487 tokens
Fair price = 1 985 256/1 738 487 = $1.1419, As you can see, we were 99.9% percent right.
As different sources are used to determine the prices, it is common to witness a gap between them.
How can it happen? Imagine nothing happened with the prices of underlying tokens, and the total supply stayed the same.
At the same time, somebody executed a buy order via SushiSwap, this purchase can noticeably move the price of ASSY, creating the gap between Fair Value and Market Price.
At this point, Arbitrageours come into play. If the gap is sufficient to make a profit, an arbitrageur can mint new ASSY from PowerIndex and sell it on SushiSwap, returning the price to equilibrium.
