Before investing or staking your crypto, make sure you know what you’re getting into. Choosing between APR and APY is one of your first decisions.
. If the expressed APR is 24%, then 0.24 Ether should be earned on top of the initial investment if it is locked in the pool for exactly one year. As a result, the investment should now total 1.24 Ether, made up of the 1.0 Ether principal and the accrued 0.24 Ether in interest .Following the earlier example, this would go as follows:
Holding for three months will earn only 1.06 Ether on top of the initial investment. Another formula to calculate APR is:A 10% APR means 10% is earned on the initial investment after a year. Unlike the APR, which only considers ordinary interest, the APY includes compound interest. Compound interest is the amount earned on the interest and the principal investment. This is why the APY is more profitable than the APR.
Investors can use crypto exchanges, crypto wallets or DeFi protocols to start earning an APY on their Bitcoin. Interest is often paid in the same cryptocurrency invested; however, there are instances where a different currency is paid.The compound interest can be set to daily, weekly, monthly, annually or continually.
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