Traditional savings interest rates can be seen hugging the floor. Due to this crypto enthusiasts are giving attention to APY in crypto. You can also earn passive income by shifting from traditional savings accounts to crypto savings accounts that offer great APY. Unaware of APY and looking for What is APY in crypto? Here is a post on “What is APY in crypto” to help you learn everything about APY.
As per the Bankrate, the average savings interest rate is around 0.06% in the US. Crypto savings accounts, unlike traditional savings accounts, offer users high APY. You can enjoy a better income if you get a high APY. APY or Annual Percentage Yield is commonly used in traditional finance and crypto.
APY helps you find how much can be earned from your assets. If you are a crypto investor, APY can be the key metric to help you know the returns from assets and platforms. Some crypto savings options and liquidity pools offer you APY above 1%. But, these APY may fluctuate over time. Want to know more about What is APY in crypto?
This post on What is APY in crypto will help you understand everything related to APY in crypto. You will learn What is APY in crypto, what good APY in crypto, and the factors that influence APY in crypto. So, without any further ado, let us dive into the post to learn What is APY in crypto.
What Is APY In Crypto?
Ever thought: What is APY in crypto? APY is the Annual Percentage Yield. It acts as a crypto savings account just like an annual percentage rate (APR) account. You can deposit any crypto asset and receive a fixed amount or rate of return over a specified time. APY is the method to calculate the amount of money you earn on a money market account in a year. In other words, it can be a technique used to track how interest accumulates over time.
Compounding interest is what you earn on your funds. It is the amount received on the principal amount and interest accumulated. Compounding is one of the strong instruments for investment as it helps to create money over time. It isn’t the same as simple interest. Simple interest is the interest generated on the main deposit or principal amount.
If you are a cryptocurrency lover and want to earn by just holding your investments, crypto savings accounts with APY can be what you are looking for! You can consider factors such as fees, interest-earning procedure, types of crypto assets, etc. to choose from various crypto yield programs. APY is an important metric for crypto savings accounts. Crypto traders can earn APY on crypto by staking, putting them in savings accounts, or by providing liquidity to liquidity pools through yield farming. As we have discussed What is APY in crypto, let’s find out what a good APY is.
What Is A Good APY In Crypto?
APY earned through crypto deposits is way higher than that of savings accounts in traditional finance. Many crypto projects offer an APY of more than 1%. Many projects specifically on DeFi platforms offer high APYs of more than 100%. Uniswap, PancakeSwap, and SushiSwap are some examples. You’ll find competitive APY rates across various platforms. Different platforms will offer you different APY. Let’s see how you can calculate your interest in crypto with crypto APY calculators.
How To Calculate Interest On Crypto?
The most common way to calculate the yield based on APY is to simply multiply the value with the principal. You can also break your overall APY into specific time frames like for a week. Here is a way to calculate your interest for 7 days on a 12% APY 7-day plan with a deposit of 1,000 USD.
Interest = (Principal X APY/ 365) X Period
Interest = (1000 X 0.12/ 365) X 7
Weekly interest = 2.30 USTD
You can see if you withdraw your funds after 7 days, you’ll get around 2.30 USTD as interest. If you’re not interested in withdrawing funds for a year, the interest will be added to your balance every week.
Why Is APY High In Crypto?
APY in crypto is higher than traditional banks because of several reasons. Let’s find out what these reasons are!
- Traditional banks offer lower APY than in the crypto space. On average, you can earn around 0.28% from bank savings accounts as loans are issued at 2-3%. However, in crypto savings accounts, you can enjoy around 12% APY as loans are issued at 5-18% on an average.
- APR in crypto is upward due to high volatility and few regulations. APR depends on the type of crypto and its capitalization and pushes the APY upwards in return.
- High APY and APR come from high risk and high profits associated with the space.
- APY for a specific project depends on the demand and supply of the crypto project’s assets. High demand translates to high APY.
You can find a constant change in APY in the crypto world. If there is high demand for a specific crypto asset, APY and interest rate will also increase. As we know ‘What is APY in crypto’, how you calculate it, let’s check the factors that influence APY in crypto.
What Are The Factors Influencing APY In Crypto?
1. Demand And Supply
Just like any market economy, the law of demand and supply influences pricing. Market dynamics can play a crucial role to determine the rates as interest is earned based on the demand to borrow particular crypto. If there is plenty of supply, the interest rate charged on borrowing tends to lower while it’s higher when supply is scarce. Likewise, as the level of demand changes, APY is also variable.
2. Compounding Periods
APY calculation changes by the amount of compounding applied. If the number of compounding periods increases, APY also increases. Let’s understand it with an example.
Suppose, you deposit $100,000 compounding monthly at 5% p.a. you will have an APY of 5.116% [100,000 x (1+0.05÷12)^(12)]. You’ll get $105,116 at the end of the year.
If you go for daily compounding, you’ll get 105,127 with 5.126% APY [100,000 x (1+0.05÷365)^(365)] by the end of the year.
Thus, the more opportunities the interest has for growth, the more it can earn.
3. Inflation
Inflation is the loss in currency’s value over time. In cryptocurrencies, inflation means the process to add new tokens to the blockchain network, mostly at predetermined rates. The inflation rate for a specific network affects the shaking returns. Your earnings will erode as quickly you add them if your coins experience higher inflation rates than your APY.
Wrapping-Up:
This post covers everything about “What is APY in crypto”. APY is the Annual Percentage Yield. It is the rate of return you earn on an investment after principal and compound interest has been considered. If you are a crypto enthusiast, you must check out the APY before depositing their cryptos.
High APY means you can earn more on their deposits. But don’t forget that APY keeps on fluctuating. Got all your doubts clear regarding What is APY in crypto? Feel free to hit the comment button and drop your queries in it. Don’t forget to share the post as much as possible and help your friends learn What is APY in crypto.
Frequently Asked Questions
Q1. Can I Earn APY On Crypto?
A. Yes, two types of cryptocurrencies, native coins, and stablecoins, allow you to earn interest.
Q2. What Cryptos Have The Highest APY?
A. The highest APY is offered on Cosmos at 5%, Ethereum yielding 4%, while Tezos pays 4.64%, and Algorand pays 4%.
Q3. What Is 5.00% APY Mean?
A. If a person gets 5% APY, it means he’ll receive 5% of the funds deposited by him into his account. Suppose, you have deposited $2,000 to your savings account with 5% interest annually, which means you’ll get $2,100 at the end of the year.
Q4. Does CoinDCX Pay Interest?
A. Yes, you can earn a certain amount of interest on your CoinDCX’s crypto holdings.
