Yield Calculations

shMonad earns revenue from two primary sources: staking rewards from validators and MEV (maximum extractable value) payments. Understanding how these are processed and distributed helps you estimate your returns.

How Yield Accumulates

1. Revenue arrives: Staking rewards and MEV payments increase the protocol's total MON holdings
2. Equity grows: As revenue is received, the protocol's equity increases
3. Exchange rate rises: With more equity backing the same number of shMON tokens, each shMON becomes worth more MON

Note that shMON is not rebasing: you don't receive additional shMON tokens as rewards. Instead, the shMON you already hold becomes worth more MON over time.

The Leverage Effect of Zero-Yield Deposits

Zero-yield deposits create a multiplier effect on shMON returns:

When someone makes a zero-yield deposit:

• The protocol's total staked MON increases
• The shMON supply stays the same
• All rewards from that deposited MON flow to existing shMON holders

Example: If the protocol has 1,000 MON backing 1,000 shMON, and someone makes a 100 MON zero-yield deposit:

• Total staked: 1,100 MON earning rewards
• Total shMON: Still 1,000 (unchanged)
• Result: The same number of shMON tokens now benefit from 10% more staked capital

This creates a leverage effect without debt, liquidations, or interest payments. The zero-yield depositor's principal is tracked as a liability and remains withdrawable, but until conversion or withdrawal, the deposit is staked and its staking rewards boost yield for shMON holders.

Estimating Returns

To estimate the annual percentage rate (APR) or annual percentage yield (APY), you track how equity changes over time.

Basic APR calculation:

$$\text{APR} = \frac{\text{Ending Equity} - \text{Starting Equity}}{\text{Starting Equity}} \times \frac{\text{Seconds per Year}}{\text{Seconds Measured}}$$

This gives you a simple annualized rate assuming no compounding.

APY with compounding:

Since rewards are reinvested automatically, you can calculate compound returns. With roughly 1,590 epochs per year (5.5 hours each):

$$\text{APY} = \left(1 + \frac{\text{Equity Change per Epoch}}{\text{Starting Equity}}\right)^{1590} - 1$$

What affects your returns:

1. Base staking rate: Monad's validator rewards (outside shMonad's control)
2. MEV activity: Additional revenue from block production and MEV capture
3. Zero-yield deposits: More zero-yield capital means higher APR for shMON holders
4. Atomic unstake fees: Revenue from instant withdrawals adds to returns

Important note: Since equity grows continuously while shMON supply stays fixed (except for minting and burning), your returns compound automatically. You don't need to manually reinvest—just hold your shMON and watch its MON value increase.