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With conventional savings rates hovering around rock bottom, it’s no surprise that cryptocurrencies and related concepts like staking, yield farming, and crypto lending are receiving a lot of interest. Few would argue against the appeal of passive income.
The term Annual Percentage Yield (APY) is widely used in both conventional banking and the cryptocurrency industry to describe the rate of return on investments. The primary distinction is whether or not your returns are compounded, i.e., whether or not your earnings generate earnings. Therefore, the Annual Percentage Yield (APY) is a crucial indicator for comparing returns across various platforms and assets if you’re a crypto investor.
This article explains APY, how it works in cryptocurrency, and where it matters when making investments.
What is APY?
The Annual Percentage Yield (APY) of an investment takes into account the compound interest, which is interest earned over time. Compound interest is when interest is added to an interest that has already been earned.
While Annual Percentage Yield (APY) is often associated with “old school” savings accounts, it is nevertheless a crucial metric for crypto-based financial products. APY may be earned on cryptocurrencies by staking them, depositing them in savings accounts, or providing liquidity to liquidity pools via yield farming.
You can quickly earn APY on your crypto by using cryptocurrency exchanges, wallets, and DeFi. Decentralized Finance (DeFi) incorporates the decentralized concept of blockchain into the realm of finance.
Most of the time, investors will receive interest in the same cryptocurrency they invested in. However, they may be compensated in a different currency in other cases.
APY vs. Simple Interest: A Comparison
A simple interest rate includes the interest earned on the initial investment. However, an APY is the expected yearly return on a deposit or investment after compound interest is deducted. Thus, the primary distinction is that APY takes into account the effects of compounding interest if it applies.
Compounding is a good investment approach since it helps you to earn more money over time. Compound interest is calculated over a specific time period and applied to the balance. Then, with each subsequent month, the interest is paid on the total amount climbs.
To make it simpler to understand, consider staking $1,000 at a 12% annual interest rate in January 2021. Using a simple interest rate calculation, you will receive a total of $1,000 (1 + 12 %) = $1,120 in January 2022 after one year.
The same $1,000 invested at 12% per year with biannual compounding returns of $1,060 after six months.
You will have earned $1,060 (1+ 6%) = $1,123.60 after a year.
The additional $3.60 is due to the power of compound interest. Your annualized percentage yield in this example is 12.36% (1.1233610001).
How Does Crypto 7-Day APY Work?
The 7-day APY is the annualized yield based on 7-day returns. It’s calculated by converting the 7-day net price difference into an annual percentage.
Calculating 7-day APY:
APY = 365/7 (X Y Z)
Where:
X denotes the 7-day price.
Y indicates the price at the start of the seven-day period.
Z indicates weekly exchange fees.
This approximate value helps investors in gauging the weekly yield or return.
How to Calculate APY in Cryptocurrency?
The APY formula is as follows:
APY = (1 + r/n)ⁿ − 1
Where:
r stands for return on investment (or annual APR)
N is the number of compounding periods in a year.
The calculation to determine APY in crypto is the same as it is in conventional finance, with the intention of providing a percentage return.
However, depending on the exchanges, there are numerous methods to compute APY. The APY is calculated in the form of simple interest. Based on the number of tokens deposited, the daily yield shows the interest rate that will be sent into your wallet.
The formula is given below:
Daily yield = The number of total tokens staked × (APY for the staked token ÷ 365)
For example, if you staked 10,000 USDT for a guaranteed APY of 9%, you will get a rounded-off to the nearest integer of 2.5 USDT the next day. The formula is as follows: 10,000 (0.09 365) = 2.4657 USDT
No yield will be added to your account if you opt to unstake your tokens after receiving the daily rewards. In effect, any changes to the original staked asset will have an impact on the daily yield.
Best platforms for earning APY on Crypto
Unsustainably high APY in crypto of 1000% or more may signal fraud or a crypto enterprise desperate to attract investors. On the contrary, there are secure, dependable platforms where you can earn up to 17% APY on cryptocurrency, which is significantly superior to savings account at your bank.
Let’s look at some of the most popular names in this market:
DeFi Swap
DeFi Swap is a fresh new Decentralized Exchange (DEX) located on the Binance Smart Chain that allows investors to easily swap tokens, stake coins, and farm yields. DeFi Coin (DEFC), a BEP-20 token that generated triple-digit gains when the exchange went online, powers the DeFi Swap ecosystem.
DeFi Swap, being one of the top DeFi exchanges, provides a simple option for investors to earn a return on their idle crypto assets. Through DeFi Swap’s autonomous liquidity pools, which offer the financial resources to support token swaps, investors may generate a consistent revenue stream. In addition, transactions can be performed in a cost-effective and decentralized way thanks to DeFi Swap’s use of these liquidity pools rather than conventional order books.
The particular APY given by DeFi Swap’s liquidity pools is determined by the tier you choose. At the moment, four tiers are available:
Bronze: 30-day lockup, 30% APY
Silver: 90-day lockup, 45% APY
Gold: 180-day lockup, 60% APY
Platinum: 365-day lockup, 75% APY
These rates are far higher than a typical bank account, making DeFi Swap one of the best DeFi platforms for yield generation.
Looking forward, the future of DeFi Swap (and DeFi Coin) is bright. Upgrades to the DeFi Swap exchange, including webinars and real-time market data, are already in the works. Finally, storing DEFC in your wallet will let you participate in the token’s built-in taxation system, which will increase your revenue even more.
AQRU
AQRU seeks to make earning interest on your cryptocurrency assets easy and flexible. You may earn APY on Bitcoin, stablecoins, or both with no lockup period or fixed terms.
The APY for BTC and ETH offered by the platform is 7%, while the APY for stablecoins USDT, USDC, and DAI is 12%.
Deposits may be made via bank transfer, debit or credit card, or by transferring cryptocurrency to an AQRU wallet. AQRU is also a cryptocurrency lending platform that offers loans backed by customers’ cryptocurrency holdings to businesses like exchanges and individual borrowers.
Interest is paid every day, so your crypto savings balance earns compound interest. Funds are available for withdrawal at any moment, and fiat withdrawals are free. The withdrawal charge for cryptocurrency is $20.
The minimum deposit to earn APY on AQRU is $100. However, if the value of BTC or ETH falls after depositing, you will still receive APY.
Bitstamp
Bitstamp has a rewards program called Bitstamp Earn, through which users may earn interest on their cryptocurrency holdings at a rate of 4.45% on Ethereum 2.0 or 5% APY on ALGO (Algorand tokens). Unfortunately, APR is a basic interest rate that does not compound. This is because ETH 2.0 has not yet been completely deployed.
Bitstamp is a crypto staking platform; thus, your assets are not distributed as crypto loans but instead utilized to verify and validate blocks on the blockchain, resulting in staking rewards. You don’t need to actively participate since Bitstamp provides the nodes and other technological tools needed to stake crypto.
The APY is deposited immediately into your account. Algorand staking incentives are distributed quarterly after each governance term.
Staking awards for ETH 2.0 are awarded at the start of each calendar month. However, due to the way Ethereum staking works, you will only be able to liquidate your ETH2 after the Ethereum 2.0 upgrade is implemented. The same is true for ETH staking on other cryptocurrency exchanges.
These three are just some of the most popular platforms as of now. However, with some research, you’ll find several more such platforms, each with its APY offerings. But, always do thorough research about the platform before investing any funds.
Closing thoughts
Every prudent investor must have a system for evaluating various investment options and keeping track of their returns. APY, or Annual Percentage Yield, is a typical return computation rate used in conventional banking and cryptocurrency. It takes into account the benefits of compound interest, which may enhance the amount earned. The greater the APY, the greater the profit for investors. To determine which investment opportunity offers the highest APY, comparing the many available choices is helpful.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
