07-20-2021, 03:53 AM
Staking APYs are not APRs
<!-- SC_OFF --><div class="md"><p>This may be common knowledge for many people here, but there is a significant difference between APR (annual percentage rate) and APY (annual percentage yield). APR does not take into account compounding interest, APY does. So when you see a figure for estimated APY when staking, this is the estimated yield one year from today, compound interest included.</p> <p>So say you are calculating how your balance will grow over time, if you apply the APY figure compounding on a daily or weekly basis, you’re actually double counting compound interest, as this is already built into the APY formula.</p> <p>Not going to make a huge difference on small balances, but if you have a significant amount invested, it could really throw off your staking projections, especially if you’re trying to beat inflation rates in something like ADA or ATOM.</p> <p>EDIT: As <a href="/u/camehere2">u/camehere2</a> pointed out, you have to stake the rewards you get to earn that full APY, vs a savings account at a bank which automatically compounds over time. Thanks for the contribution!</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ckiertz4887"> /u/ckiertz4887 </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/onedq8/staking_apys_are_not_aprs/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/onedq8/staking_apys_are_not_aprs/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>This may be common knowledge for many people here, but there is a significant difference between APR (annual percentage rate) and APY (annual percentage yield). APR does not take into account compounding interest, APY does. So when you see a figure for estimated APY when staking, this is the estimated yield one year from today, compound interest included.</p> <p>So say you are calculating how your balance will grow over time, if you apply the APY figure compounding on a daily or weekly basis, you’re actually double counting compound interest, as this is already built into the APY formula.</p> <p>Not going to make a huge difference on small balances, but if you have a significant amount invested, it could really throw off your staking projections, especially if you’re trying to beat inflation rates in something like ADA or ATOM.</p> <p>EDIT: As <a href="/u/camehere2">u/camehere2</a> pointed out, you have to stake the rewards you get to earn that full APY, vs a savings account at a bank which automatically compounds over time. Thanks for the contribution!</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ckiertz4887"> /u/ckiertz4887 </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/onedq8/staking_apys_are_not_aprs/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/onedq8/staking_apys_are_not_aprs/">[comments]</a></span>Kind Regards R