Understanding CeFi, DeFi & Yield Farming - Part 7
Hello everyone, hope you all are doing good? I'm back with the Part 7 of this amazing series, Understanding CeFi, DeFi & Yield Farming. If you haven't read the Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6, I strongly suggest you that by clicking here for Part 1, here for Part 2, here for Part 3, here for Part 4, here for Part 5 and here for Part 6. In today's article we would be looking at the Calculation method in Yield Farming Returns.
There are two ways in which our returns from yield farming can be calculated and they are;
- APR
- APY
APR
Annual Percentage Rate(APR) is the annual returns on investment without the inclusion of compounding interest. I will use an example to illustrate how it can be calculated.
Example: I staked some of my BAKE which was worth about $200 with an APR of 40%. How much will I get after one year from my investment?
Initial Investment = $200
APR = 40%
My profit will be = 40% X $200
Profit = $80
Total Returns after a year = Initial Investment($200) + Profit($80)
Total Returns to be withdrawn after a year = $280
APY
Annual Percentage Yield(APY) is the annual returns on investment with the inclusion of compounding interest. I will use the same example from above to illustrate how it can be calculated.
Example: I staked some of my BAKE which was worth about $200 with an APR of 40%. How much will I get after one year from my investment?
Initial Investment = $200
APR = 40%
Profit = ((1 + r/n)n - 1) X Investment .
Where r = compounding period - i.e (40%)
n = number of days - i.e (365 days)
Investment = $200
((1 + 0.4/365)365 - 1) X $200
((1 + 0.001096)365 - 1) X $200
((1.001096)365 - 1) X $200
((1.492) - 1) X $200
(0.492) X $200
Profit = $98.4
Total Returns after a year = Initial Investment($200) + Profit($98.4)
Total Returns to be withdrawn after a year = $298.4
I hope you all found the article interesting and exciting. Do well to share your thoughts about the article in the comment section below. Thanks.
