Crypto APY Calculator: Calculate Crypto Compound Interest
Determine your earnings with daily compound interest using our crypto APY calculator. While numerous options exist for holding and growing your cryptocurrency, only a select few offer the benefit of compound interest. This method of interest amplifies your profits compared to standard interest, leading to higher crypto returns. While our tool simplifies the calculation for you, it’s essential to grasp the fundamentals of compound interest.
At the end of the compounding process you will earn 0.0000 more tokens.
How do you Calculate APY & APR in Crypto?
Calculating APY (Annual Percentage Yield) and APR (Annual Percentage Rate) in crypto follows the same fundamental principles as in traditional finance, but the specifics might vary based on the context within which they are used in the crypto domain. Here’s a basic overview:
APR (Annual Percentage Rate):
- APR is generally simpler to calculate than APY. It represents the annualized interest rate without compounding.
- Formula: APR = (Interest Earned / Principal) x Days in a Year / Duration the Interest is Earned
- If you earn 0.01 ETH from a 1 ETH deposit in 30 days, your APR would be: APR = (0.01 / 1) x 365 / 30 = 12.167 or 12.17%
APY (Annual Percentage Yield):
- APY takes into account compounding, which is the effect of earning interest on previous interest.
- Formula for Continuous Compounding: APY = e^(APR) – 1
- Formula for Periodic Compounding: APY = (1 + r/n)^(n*t) – 1 where: r = interest rate for the period (as a decimal) n = number of compounding periods in a year t = time the money is invested for in years
- So if you have an APR of 12% compounded monthly, your APY would be: APY = (1 + 0.12/12)^(12*1) – 1 ≈ 12.68%
What is APY?
APY stands for “Annual Percentage Yield.” It represents the total amount of interest you can earn or owe on an investment or loan over a year, taking into account the effect of compounding. Compounding refers to the process where interest is added to the principal amount periodically (like daily, monthly, or quarterly), and then subsequent interest is earned on that increased amount.
Example: If you invest 100 USDT at 5% APY in a crypto interest account, you’ll earn 105 USDT at the end of one year from the deposit date.
What is APR?
APR stands for “Annual Percentage Rate.” It represents the annualized cost of borrowing money, or in some contexts, the return on an investment. For borrowing, it includes not just the interest rate itself but also any associated fees and charges that are part of the loan. Therefore, the APR provides a more complete picture of how much a loan will cost over the course of a year.
APR = Periodic Rate x Number of Periods in a Year
Banks usually feature APR for credit products such as cards or mortgage loans. If you are a borrower, you would be interested in the lowest possible APR, which means that the loan is the least expensive.
What’s the Difference Between APY & APR?
The primary difference between APY and APR is how they account for compounding. APY considers the effect of compounding interest, while APR does not. When you borrow or invest money, the interest can be compounded on different intervals, such as daily, monthly, or yearly.
APR simply gives you the base rate of interest without taking compounding into account. It’s a straightforward representation of the yearly rate. For loans, it may also include other fees, so it can show the total cost of borrowing more accurately than just the interest rate alone.
APY, on the other hand, provides a picture of the effective rate you’ll earn or owe after considering compounding. Because compounding allows interest to be earned on previously accumulated interest, the APY is often higher than the APR if there’s more than one compounding period in a year.
What's the Difference Between APY & Interest Rate?
The primary difference between APY and interest rates lies in how they account for compounding. The interest rate is the basic rate at which interest is calculated on your principal, whether it’s the amount you deposited in a bank or the amount you borrowed. It does not factor in the effects of compounding.
On the other hand, APY takes compounding into account. Compounding happens when the interest you earn on a principal is added to that principal, and then future interest calculations are made on this new, larger amount. When interest is compounded more frequently, such as daily or monthly, it can significantly boost the effective interest you earn or owe.
Why is the APY High in Crypto vs Traditional Finance?
The difference in APY between crypto platforms and traditional finance primarily arises from the inherent risk and nature of the crypto industry. Cryptocurrencies are viewed as riskier than traditional assets. To attract investors and users, platforms offer a higher APY as compensation for taking on that added risk.
The crypto industry is also in its early adoption phase. To encourage participation and growth, many platforms offer attractive APYs, even if they might not be sustainable in the long term.
Another factor is the efficiency of crypto platforms. Decentralized models and the automation brought by smart contracts often reduce operational costs compared to traditional banks, and some of those savings might be passed onto users in the form of higher yields.
Overcollateralization in crypto lending platforms also plays a role. Given the volatile nature of crypto assets, borrowers often have to provide collateral that exceeds the loan value. This provides an added layer of security for lenders and might enable platforms to offer more attractive interest rates on deposits.
Lastly, unique crypto phenomena like yield farming and liquidity mining can boost APY. Users who provide liquidity might receive additional tokens as incentives, which, when added to the regular interest, can lead to higher overall returns.
In contrast, traditional finance operates in a more regulated and established environment with standardized practices, leading to relatively stable but often lower yields.
What is Compound Interest?
You do not need to understand compound interest to use a Bitcoin compound interest calculator and see your potential profits. However, it is still wise to have some basic understanding. After all, you should know why compound interest is so great for maximizing your passive earnings.
A Basic Definition:
Compound interest is when you earn interest calculated based on the deposit and past interest. This contrasts with non-compounding interest that only considers the initial balance when being calculated.
What is Impermanent Loss?
Impermanent loss is incurred when liquidity providers receive different amounts of assets upon withdrawal compared to when they first deposited them into a liquidity pool on an automated market maker (AMM) such as Uniswap or Sushiswap. This is due to changes in token price, which affects the composition of the liquidity pool, resulting in you having slightly less or more of a particular token.
For example, even if you deposited your assets at a 50:50 ratio at the start, there is no guarantee that you will receive the same amount of each asset in the end. This may result in liquidity providers receiving a lower value of assets than if they just chose to hold the tokens in their wallet instead.
How to Calculate Impermanent Loss?
Now that you’ve understood how impermanent loss occurs, how do you calculate exactly how much you’ve lost from providing liquidity? If the price of the assets in a pool changes by a certain amount, the total value of your deposits will be affected, and we can simply plot these results on a graph. Since we are talking about the price change, it does not matter whether the price of the assets goes up or down, as you would still be better off holding the assets instead.
Depending on the amount of liquidity as well as the trading activity associated with a particular liquidity pool, depositors can generate a positive return if the earned fees exceed their impermanent loss or not at all. These fees that depositors can expect to receive are usually represented in percentage form, otherwise known as the APY.
How to Earn Staking Rewards
Making a profit with crypto staking is straightforward. All you need to do is deposit your cryptocurrency in/on the appropriate wallet or platform and wait for the results come through.
If you want to maximize your profit, however, you should pay attention to the interest rates offered and use a crypto staking calculator to see if you are happy with the potential rewards. Remember that you cannot use your cryptocurrency during staking.
What to Know Before Staking Crypto
While the act of staking your Bitcoin, Ethereum, or USDT is straightforward, there are a few important things to know ahead of time.
That Your Platform Is Reputable
As mentioned, you should always make sure that you choose a staking platform with a good reputation. This will protect your funds and help guarantee you get your advertised staking rewards.
To evaluate the reputation of the platform, check out reviews. You should also look at its history, including the history and experience of its team members.
This is also ideal to see how the platform earns crypto to pay you interest. The platform should have a reliable, proven effective method and not be too risky.
Every staking system works slightly differently. Some will require you to lock up your cryptocurrency for a set amount of time, which means that you cannot withdraw your cryptocurrency during that period. Others will let you choose your lockup period or even opt out of one entirely.
Before choosing your lockup period, consider how long you can be without cryptocurrency. Think about future plans and whether you want it accessible to trade or buy something. If it is a long-term investment and you do not have any immediate plans, this can be less important; however, you should still account for potential changes in your mind.
You will also want to consider the interest rate for your chosen platform, as this directly affects the results of your staking rewards calculator. A higher interest rate results in larger rewards. You should also pay attention to how frequently that interest rate is compounded. Ideally, you want an account with daily compounding interest.
What Earnings to Expect
The best platforms will offer a higher interest rate if you lock up your cryptocurrency for longer. This means that you may want to play around with a crypto staking calculator to find the right balance for you between a high-interest rate and a lockup period you can handle.