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.
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.
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
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.