How to calculate the Returns of Yield Farming
The Calculation method in Yield Farming Returns
Two methods are used to calculate Yield farming Return. One is Simple interest based another one is compounding interest base (reinvested on daily basis).
Name of these two are-
- APR (Annual Percentage Rate)
- APY (Annual Percentage Yield).
APR means the total return on investment after a year in simple interest basis. It’s pretty simple interest calculation technique we use in our day-to-day life like return on investment in percentage of the year.
- APR Calculation System APR = (Annual Return / Investment) 100% For example, APR for CAKE token is 50% in the Manual Cake pool of Pancakeswap yield farming. If I stake $1000 then I shall have 50% of $1000 = $500 as a reward. My total investment asset at the end of the year will be $1000+$500 = $1500**
APY means the compounding interest. Here the reward of daily (if daily compounding) assets will be again used as investment for reward generation.
- APY Calculation System Lets consider Previous example again just changing the term APR into APY. Formula, FV = Invested Amount * {(1+r)^n-1}
Here rate, r = 50% = 0.5 yearly. So daily r = 0.5/365 = 0.00136986
Time, n = 365 days
So, according to formula, FV = $1000 [{(1+0.00136986)^365}-1] = $1000 {(1.00136986)^365 -1} = $1000 0.64815725 = $648.16 Therefore, total return at the end of the year = $1000 + $648.16 = $1648.16**
Here you can see the difference between simple interest calculation and compounding interest calculation. With same rate, investment and time frame, one is $1500 and another is $1648.16. The difference $148.16 is the because of daily compounding.
Who I am
This is Sayful
Ex Banker Part time blogger By Profession Lecturer Fasinated by Nature and Cricket Day dreamer and a round pig in square hole Write on Textiles, Online Money Making, Agriculture & Technology
Upvote, Reblog and Follow me on hive @engrsayful
This is Saiful’s Classroom from @engrsayful
Find me on
| Youtube | ThreeSpeak | DTube** |
Posted Using LeoFinance Beta
