The charming benefit of 250% annual interest — no different from loss in reality

Investing in Marblex’s liquidity pool (LP) is investing in the liquidity pool of the operating funds of the FCT ↔ MBXL trade system provided by the MBX Swap service. MBX Swap runs the exchange with the deposited investments, and investors gain a portion of the exchange fee and an incentive provided by Marblex. It is similar to saving money in the bank and gaining interest in return.

When I first started the investment on Dec. 13, 2022, the interest benefit, including incentives, was about 250% APR. As incentives were applied up to Jan. 13, it looked like a charming investment that could earn about 20% in interest over just one month. However, I barely avoided loss in principal after the 1-month investment.

31-day LP investment result 1. “ROI 0.81%”

As a result, there was a benefit, but it only was 0.81% of the principal. Considering the opportunity cost of investing in LP instead of using it elsewhere, it’s no different from suffering a loss. The $135 principal became $108, and the interest made up for the loss in principal. Even with MBX, it only increased by six from 100 MBX to 106 MBX — far below the projected 20% benefit.

31-day LP investment report 2. “Deficit for 27 days over the 31-day period”

The ROI (Return on investment) reduced little by little, and on Dec. 28, it got as low as -21.76%, but it started to recover afterward and reached +5% on Jan. 12. To rule out the effect of MBX’s market price change, looking at the results based on MBXL instead of dollars is as follows.

Early in the investment period, on Dec. 16, the balance went up to 109.7 MBXL due to the increased ratio of FCT ↔ MBXL, which was the maximum amount over the 31-day period. However, it started to decrease from Dec. 17, and starting from Dec. 21, the decrease rate started to accelerate. This seems to be because of the FM generated from KOF Arena — many holders exchanged it into FCT and monetized their assets. (Season 1 ranking event reward, safe preseason mining with no penalties went on for seven days)

On Dec. 28, it went down to 92.5 MBXL, but due to the increase in the exchange ratio between FM ↔ FCT (400:1 → 600:1), it recovered up to 102.3397 MBXL. Afterward, it remained at about 106 MBXL.

31-day LP investment report 3. “Interest alone was 21% of the principal”

The reward over 31 days was 21.4 MBXL, which is more than 21% of the principal, 100 MBXL. It stacked up with an average of 0.7-0.8% every day. After the incentive period, the exchange fee generates rewards, so the daily interest benefit dropped to about 0.004%. I decided that it no longer had enough profitability and sold.

31-day LP investment report 4. “Interest benefit prevents loss”

I barely avoided loss in ROI. As the MBX price and the FCT/MBXL exchange ratio dropped, the cash value of the investment assets also dropped, so it seemed that I would take less than what I came with, but the interest benefits made up for the loss.

Reason for principal loss 1. “Decrease of MBX price”

The most important thing to consider before investing in LP is that if the MBX price when you withdraw is lower than when you deposited, that alone makes a loss. Marblex, for example, gains MBXL as interest when you invest FCT in LP. To cash your deposit (MBXL, FCT) and interest (MBXL), you must go through MBX, so the MBX market price is directly connected to your profit.

When you invest in the LP of other cryptocurrencies, you are not obligated to go through that specific cryptocurrency. You can trade with other cryptocurrencies, so the loss due to the drop in value can be relieved. However, investing in Marblex LP must go through MBX if you want to cash out, so your profit rate is affected directly by the value change of MBX. In fact, during the actual investment period, the entire value in principal plus interest that was invested in LP followed the MBX price.

However, there were cases where the asset value increased even when the MBX value decreased, or the asset value dropped even when the MBX value didn’t change much. This was because it was affected more by the FCT/MBXL trade ratio than the MBX value change. 

Reason for principal loss 2. “FCT/MBXL trade ratio decrease”

The FCT and MBXL invested in LP are used to operate the FCT ↔ MBXL exchange. According to the deposited FCT:MBXL ratio, the FCT/MBXL exchange rate is decided. If the amount of FCT and MBXL is changed due to people using the exchange, the FCT/MBXL exchange rate also changes.

For example, if users exchange MBXL into FCT, there will be more MBXL and less FCT in the exchange, so the FCT/MBXL ratio rises. To gain more income, the exchange ratio has to increase. This is because the MBXL increased from the deposited principal, and that you can gain more MBXL than the beginning when you trade FCT into MBXL.

* As MBXL can be traded with MBX in a 1:1 ratio to monetize right away, it has the same value as MBX. However, with FCT, it must go through MBXL to monetize, so the amount of MBXL you can gain changes according to the exchange ratio. This means that the amount of MBXL you can gain after the exchange is more important than how much FCT you have.

On the other hand, if users exchange FCT for MBXL, the FCT increases and MBXL decreases, so the FCT/MBXL trade ratio decreases. The principal MBXL decreased and FCT increased, but due to the decreased FCT/MBXL exchange ratio, you can gain less MBXL when you trade in FCT, so you would suffer a loss in the principal that you invested in LP.

By considering the MBX value change, the FCT/MBXL exchange ratio, and the value of the overall assets, you can understand the change in the overall asset value, which wasn’t understandable with just the MBX value change. Even if the MBX value decreases, if the FCT/MBXL exchange ratio rises, the overall asset value can be maintained or even increased. If positive causes are bigger than negative causes, it balances out.

However, the FCT/MBXL ratio has been continuing to drop. This is because there are much more people who want to monetize the FM they mined from the game than people who want to invest in the game by trading MBXL into FCT. To ease this negative cause, the FM ↔ FCT exchange rate is adjusted continuously, but it is still decreasing, so it is projected that the FCT/MBXL exchange ratio will continue to drop.

“LP investments are profitable only when the coin market and external situation are both good”

The LP investment result over 31 days is as follows. I profited $1.10 with an initial investment of $135. The ROI is only 0.81% — in APR, it’s 9.58%. Since the incentive period is over, I can no longer gain rewards. The APR is now down to 0.2%, so it is no longer profitable to invest in LP. This is because I can no longer compensate for the loss in principal with interest.

Considering the interest, investing in LP may look sweet, but the value of MBX and FCT/MBXL exchange ratio, which get affected by external issues, affect the earnings massively. That being said, the MBX price and FCT/MBXL exchange ratio have to be maintained throughout the LP investment period to transition the interest gain into actual profit.

On a side note, if I decided to sell one day earlier on Jan. 12, I could have finished with +$6.74 (ROI 5.0%, APR 58.93%), but the MBX value dropped on the day the incentive finished, so the profit rate dropped accordingly. Like this, it is important to be decisive and retrieve the assets depending on the external issues, even if it means giving up a portion of the interest income.

At the moment, it would be difficult to make profit through LP investment, even if they give out incentives again. As of Feb. 1, the MBX value rose to $1.75, but it is quite unlikely that the MBX value will be maintained until the incentive period is over. It is also projected that the MBX value and FCT/MBXL exchange ratio will drop. As a result, the MBX value has to rise for the interest to rise, so unless the cryptocurrency market is in a good situation and the external issues are minimal, it is not recommended to invest in LP.