Compounding interest in crypto

Compound Interest in Crypto

Compound interest in crypto is common and can make you very wealthy if used the right way. You will often see interest expressed as APY or APR in crypto, but what is the difference? Compounding is the difference, and it can have a massive effect on your investment. Do you understand the difference?

It can get a little confusing when trying to work out how much you might earn with compounding interest because it is not as straightforward as APR. It can also vary depending on how often you compound the interest as well. In today’s post, I will show you the difference between APR & APY and show you how to use compounding interest to create Wealth with Crypto.

APR – Annual Percentage Rate

You should be familiar with the term APR, but in crypto, it is not uncommon to express potential returns as APY so let’s have a look at each one to fully understand the difference so you can compare apples to apples.

APR is relatively straightforward. It is the interest that you can earn on an investment over a 1 year period. For example, if you invested $1000 at 90% APR, you would receive $900 in interest over a 1 year period. That interest could be paid out weekly, monthly or quarterly but is not compounded.

So with the same example of $1000 invested at 90%APR if interest was paid monthly, you would divide $900 by 12 months, giving you $75 a month. If you were getting paid weekly, it is $900 divided by 52 weeks which would be $17:31 per week.

Interest like that might seem high if you are used to centralized finance, but that is certainly possible in the world of DeFi. I currently get more than that now and have been for over 6 months liquidity mining at DeFiChain. You can learn about liquidity from my post ===> What is Liquidity Mining | CAKE DeFi Review

APY – Annual Percentage Yield

APY can be a little more tricky because you have to take compounding into the equation. You may often see % Returns stated as APY in crypto, especially in Stking Crypto, because it lends itself to compounding the rewards. First, however, you need to know the difference because 90% APR if you compound daily = 145.69% APY.

To help you understand, I will use the same $1000 investment, but we will compound the returns daily. So let’s do the math.

  • Initial investment $1000
  • Yearly interest at 90% APR = $900
  • Daily is $900 / 365 days = 2.46575, we will say $2.46

To work out our APY, if we compound daily the first day, we will receive $2.46 (90% APR), so on the second day, we will have $1002.46 invested and earn $2.47. So at the end of the second day, we will have $1004.93 and earn $2.48. So you see how each day, you add the interest earned back into the capital and then receive a higher return because you have more capital.

Over a year, if you continue to compound daily, you would earn a total amount of $1456.90. That’s an extra $556.90 compared to NOT compounding. At the start of the compounding example, rewards are similar to APR, but as the compounding effect occurs, rewards will become much higher towards the end of the term, which is a year in this case.

A great website that you can use as a convertor is APRtoAPY.com

The Compounding Effect

Compounding interest in crypto can make you very wealthy if you have the right approach to investing in crypto. Unfortunately, most people are after the Lambo in crypto and expect it to come quickly. Sure, you can make a lot fast in the crypto space, but it is a double-edged sword; you can lose it all just as fast as well.

Most people do not realise the true power of compounding interest and investing. So let’s have a look at a longer-term view. Instead of trying to Get-Rich-Quick, let’s have a look at a $1000 investment over 10 years.

Considering this, the current rate at CAKE DeFi for staking DFI is 110% APY which = 74% APR. So I will use this rate of 74% APR but compound it daily like you can with staking.

The total amount accrued, principal plus interest, with compound interest on a principal of $1,000.00 at a rate of 74% per year compounded 365 times per year over 10 years is $1,623,773.12.

Use the link below to calculate your compound interest.

Compound Interest Calculator

Staking & APY

Staking is often stated as APY because you receive regular rewards, and on a platform like CAKE DeFi, you can set your account up to Auto-reinvest the rewards every 12 hrs. That means you can compound your rewards twice a day.

I have been making over 100% APY Staking DFI at CAKE DeFi. You can read more about it and learn how to do it here ===> What is Crypto Staking?

Now Staking DFI will not continue at that rate of over 110% APY, they have a planned emission rate that will slowly drop over the next 10 years, but you can still see the power of compounding interest.

I personally Liquidity mine on DeFiChain at around 100% APR and put my rewards daily into Staking at CAKE DeFi for 110% APY. I also compound the staking rewards automatically every 12 hrs. One other factor which has not been considered here is capital growth. DFI could easily 10X in the next few years, which will increase my investment dramatically also.

Conclusion

Compound interest in crypto can be an awesome tool if used correctly. It is not a Get-Rich-Quick strategy, but a create wealth over time strategy; the key is to keep compounding. If you are new to crypto returns like those listed above, it might seem unrealistic, but I assure you that they are legitimate in the Crypto DeFi space.

When you mention these returns, many people say scam straight away, and I can see why they say that. There are still many scams in the crypto, and you need to be sceptical, but I can assure you the DeFiChain & CAKE DeFi are not scams. I have been using them for over 9 months to make good returns consistently.

If you would like to get returns like these, you can easily at CAKE DeFi. It is my number 1 recommended place for anyone to start investing. They are a great Singapore Company and are the most transparent company I have ever seen. There Lending Service even has guaranteed returns on BTC, ETH & USDT.

Compound interest in crypto combined with high % returns can make you a lot of money over time. So take your time and pick good projects; it is not a race. Regular investments with compounding interest are how you will create Wealth with Crypto. So get started today, open your account at CAKE DeFi <=== with the link and receive a $30 sign up bonus (when you deposit $50 +) and remember…

Be the Best you can Be

DeFi Dave


! DISCLAIMER

I am not a financial advisor. This is not financial advice. The content and material I provide on 2dsirecrypto.com is my opinion only and general in nature. Always do your own research before investing any money. You should always understand the risks involved in trading and investing and seek advice from licensed professionals before undertaking any investments of your own.

12 thoughts on “Compound Interest in Crypto”

  1. Hi Dave. Thank you for very interesting article. Im just starting my adventure with cryptocurrencies and posts like this are extremely helpful. Haven’t try before compound interest strategy but it seems as a good starting point even if it wont bring high income at the very first day. Definitely I will try to use it, and Cake DeFi seems good place to start investing.

    1. CAKE DeFi is my number 1 recommendation. It is an awesome place to start your crypto journey. If you need help with anything, just ask. They have a great community in Telegram as well https://t.me/CakeDeFi_EN

      Compounding staking rewards are great. I can highly recommend it.

      DeFi Dave

    1. Hi David
      I have not sold any of my positions I am HODLing. I can continue to make returns daily liquidity mining and staking.
      Yes, I think the market will recover before the end of the year for new ATH.

      DeFi Dave

  2. Thank you so much for clearing up the difference between APR and APY.  I have often wondered how to figure this out but I have never been able to find someone to explain it to me.  I’m still not clear on what staking is or how reinvesting every 12 hours will increase my APY.  I’ve been wanted to get started investing in Crypto so explaining this in simple terms would really help me out.  Thank you in advance!

    1. Hi Cynthia
      The best place to learn about Staking is in this post I wrote ===>  How to Stake Crypto | CAKE DeFI

      It will explain how staking works and how you can start easily. Have a read of the article and watch the videos and come back with any questions you may have.

      DeFi Dave 

  3. Hi Dave!

    I have seen a lot online about Crypto that people are investing into crypto to generate an income as a side hussle. It is interesting reading your article about the different terminology of APR and APY and the compounding effect. I feel like I learnt a lot from reading your article and I’m sure a lot of other people will benefit from this as well. 

    Thank you so much for sharing this article with us and I wish you all the best!

    Amzy

    1. Hi Amzy, thanks for reading my article.
      Generating a passive income from crypto is an awesome side hustle I reckon and very easy at Cake DeFi, you should have a look and see what you are missing out on.

      DeFi Dave

  4. Compounding really is the 8th wonder of the world. In the example you give, over a ten year period, the amount is staggering! I’ve not been in the loop when it comes news related to crypto. That rate of return seems high compared to conventional investing. What’s driving this high rate? Will sure check the cake DeFi to learn more.

    1. Hi, Steve yes it does seem high if you are new to crypto but believe me, once you understand the project you can see how this is possible. It is all to do with the emission rate of the newly minted coins, it decreases by 1.65% from the total every 11 days. This just means it will slowly reduce over 10 years.

      Check out CAKE they are 100% Legit and you will see that it is possible.

      DeFi Dave

  5. Its an interesting thing learning about the compound interest in crypto currencies. And the difference between APR and APY. If Cake DeFi is as legit as you say it is, then its worth a try. Although am curious, as does they have a minimum amount required to withdraw? And what is their minimum or maximum crypto you can invest in? 

    1. Hi CAKE DeFi is definitely legit and worth a try. There are no minimum or maximum withdrawal or investment limits although you need to invest a minimum of $50 to receive the signup bonus.

      Cake is an excellent platform to start investing in crypto and generating a passive income, sure beats the banks.

      DeFi Dave

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