# β‘LP Profit Calculation

## Zero Profit Scenario

First let's address the potential risk of the cost of transferring baking to Friddy, and that begs the question, at what price does the LP lose transferring backing to Friddy

"Zero profit" refers to a scenario where the LP neither earns any profit nor incurs any loss. In other words, their earnings are exactly equal to their costs. In this case, we want to find out the fixed cost per deposit that would result in zero profit for the LP.

To calculate the LP fixed cost per deposit at which the LP makes 0 monthly profit, we need to set their earnings equal to their costs. The LP's earnings come from the profit they make on each deposit, while their costs come from the fixed cost per deposit.

So, we can set up an equation as follows:

Profit = Costs

The LP's profit on each deposit is calculated as a percentage of the total amount they process, which is given by the formula:

Profit = (Total Deposit x Profit Percentage)/Average Transaction

Here, we assume the profit percentage to be 1% as mentioned in the previous model.

On the other hand, the LP's costs come from the fixed cost per deposit, which we denote by D. Therefore, we can write:

Costs = D x Number of Deposits

The number of deposits is simply the total volume processed divided by the size of each deposit, which is given by:

Number of Deposits = Total Volume/LPD

Putting these together, we get:

$(Total Deposit x Profit Percentage)/Average Transaction = D x (Total Volume/LPD)$

Solving for D, we get:

$D = (LPD^2 x Profit Percentage)/(Average Transaction x 100)$

Substituting the values given in this specific scenario, we get:

$D = (3000^2 x 0.01)/(170 x 100) β 6557.02$

When we solve this for D, we get:

$D = \frac{LPD^2}{AT}\cdot\frac{100}{101}$

Therefore, the LP fixed cost per deposit at which the LP makes 0 monthly profit is:

$D = \frac{3000^2}{170}\cdot\frac{100}{101} \approx 6557.02$

Therefore, if the LP charges a fixed cost per deposit of around $6,557.02, they would neither earn any profit nor incur any loss.

## LP Profit Calculation (LP Incentive)

To calculate the profit made by an LP, we need to consider the profit percentage they earn on each deposit and the number of transactions they can process using that deposit.

The profit percentage is given as 1% in this scenario. The number of transactions an LP can process depends on their deposit amount and the average transaction value of the merchant. We can calculate this using the formula:

$Number of Transactions = Deposit Amount / Average Transaction Value$

So, if an LP deposits a certain amount, they can process a certain number of transactions. Let's denote the deposit amount by D, and the number of transactions processed by N. Then we can write:

$N = D / AT$

Here, AT is the average transaction value of the merchant.

Now, the LP earns a profit on each transaction they process equal to the profit percentage (1%) of the average transaction value. So, the total profit earned by the LP is given by the formula:

$Total Profit = N x (0.01 x AT)$

Substituting for N, we get:

$Total Profit = (D / AT) x (0.01x AT)$ $= (D / AT) x 0.01 x AT$ $= 0.01 x D$

Therefore, the profit made by the LP is simply 1% of their deposit amount.

If we assume that the LP deposited an average of 3000 USD per day, then the profit they make per day is given by:

Profit per Day = 0.01 x 3000 USD = 30 USD

Now, let's assume that the LP compounds their profits by adding it to their deposit for the next day. This means that the LP's deposit for the second day would be:

Deposit for Day 2 = Deposit for Day 1 + Profit from Day 1 = 3000 USD + 30 USD = 3030 USD

Similarly, the LP's deposit for the third day would be:

Deposit for Day 3 = Deposit for Day 2 + Profit from Day 2 = 3030 USD + 30.30 USD = 3060.30 USD

And so on.

We can write this in a general formula as follows:

Deposit for Day n = Deposit for Day (n-1) + Profit from Day (n-1) = Deposit for Day (n-2) + Profit from Day (n-2) + Profit from Day (n-1) = Deposit for Day (n-3) + Profit from Day (n-3) + Profit from Day (n-2) + Profit from Day (n-1) = β¦ $= Initial Deposit x (1 + 0.01)^n$

Here, the "Initial Deposit" refers to the LP's deposit on the first day, and "^" denotes exponentiation.

Therefore, if we assume an initial deposit of 3000 USD, then the LP's deposit on the 30th day (assuming they deposited every day) would be:

$Deposit for Day 30 = 3000 x (1 + 0.01)^30$ = 4841.81 USD

So, the LP would make a profit of:

$Profit for Month = Deposit for Day 30 - (30 x 3000 USD)$ = 4841.81 USD - 90000 USD = 3941.81 USD

Therefore, assuming LP deposits an average of 3000 USD per day and compounds its profits by adding it to their deposit for the next day, they can make a profit of approximately 3941.81 USD per month. And that is 133% profit. If the LP did one deposit a day and used the profit the next day.

## Time to Process LP Deposit

But the more important question is, how much time is expected for the system to process a deposit?

Assuming the merchant volume is 40 million USD and the average transaction value is 170 USD.

Using the same formula as before, we can calculate the number of transactions an LP with a deposit of $3000 can process per day:

$Transactions per Day = Deposit Amount / Average Transaction Value$ = 3000 USD / 170 USD = 17.65

So, if an LP deposits $3000, they would be able to process approximately 17 transactions per day.

To calculate the number of LPs needed to process the entire merchant volume, we can use the formula:

$Number of LPs = Merchant Volume / (LP Deposit Amount / LP Fixed Cost per Deposit) x (1 + LP Profit Percentage) / Average Transaction Value x Transactions per Day$

Substituting the given values, we get:

$Number of LPs = 40,000,000 USD / (3000 USD / 3.7 USD) x (1 + 1%) / 170 USD x 17.65 = 496.43$

Therefore, we would need approximately 497 LPs to process the entire merchant volume of 40 million USD.

Now, let's assume that each LP deposits an average of $3000 per day and makes a profit of 1% on their transactions. We can calculate the profit made by an LP using the same formula as before:

$Profit per Day = Deposit Amount x LP Profit Percentage$ = 3000 USD x 1% = 30 USD

Assuming the LP compounds their profits by adding it to their deposit for the next day, we can calculate the LP's deposit for the 30th day as follows:

Deposit for Day 30 = 3000 USD x (1 + 0.01)^30 = 4841.81 USD

So, the LP would make a profit of:

$Profit for Month = Deposit for Day 30 - (30 x 3000 USD)$ = 4841.81 USD - 90000 USD = 3941.81 USD

Therefore, assuming LP deposits an average of 3000 USD per day and compounds their profits by adding it to their deposit for the next day, they can make a profit of approximately 3941.81 USD per month.

To calculate how long it takes for an LP to process 3000 USD worth of transactions, we can use the formula:

$Time = Transaction Value / (LPs x Transactions per Day)$

Substituting the given values, we get:

Time = 3000 USD / (497 x 17.65) = 0.0035 days = 5.04 minutes

Therefore, in this scenario, it would take an LP approximately 5.04 minutes to process 3000 USD worth of transactions. Again, note that this calculation assumes an even distribution of the daily transaction volume among all the LPs, so the actual time may vary depending on the actual number of LPs , payment method, LP factors, and actual transaction size. Ideally, in a few hours, the LP would be able to cash-out the deposit and that is the entire goal of Friddy.

Last updated