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How to Get More Profit with Crypto Using Compound Interest

If you are looking to multiply your profit, there are various successful strategies you might follow. Just about a week ago, we covered a way to boost your APY up to 300% with our Poly Cluster, so if you haven’t read it yet, make sure to check it out.

Today, we’ll dwell upon another way to get more profit with less effort, which you might have heard about in traditional finance. Please meet compound interest.

Compound interest in crypto🔁

First, let’s figure out what compound interest is and how it works in decentralized finance.

Compound interest is a so-called “interest on interest”, which is the reinvestment of your interest and adding it to the initial sum of a deposit. What you do is receive your interest on the current investment and add it back to the whole amount in order to get a higher profit next time.

In the DeFi community, many traders use such a technique on a regular basis. They claim rewards for staking tokens once in a while and reinvest them into staking, thus increasing the amount of the staked coins and their future rewards. This way, they create compound interest on cryptocurrency on their own.

In any case, compound interest is much more profitable than simple interest, where your accumulated interest is not added to the initial amount for further growth.

To break it up a bit further, let’s take a look at a simple example.

Compound interest example🤑

Suppose you decide to stake 10,000 Perfect Crypto coins (yes, we’re gonna use imaginary tokens, sorry, not sorry). Over the first period, you get 7% interest, which is 700 coins, so you add them to the initially staked amount.

Now, your stake is 10,700 tokens. As the second period comes to an end, you get 10% interest to this sum, which is 1,070 coins. Again, you reinvest those adding them to your stake.

So your stake increases to 11,770 coins. With the interest of 6% that the third period brings you, you earn around 706 tokens, and your overall amount reaches 12,476 coins.

On the contrary, if you collected your rewards but kept them to yourself, leaving the same amount for staking, in the end, you’d get only 12,300 tokens. The difference might not seem that big, but over time it becomes more and more noticeable.

Besides, the higher the interest, the better your profit. For instance, if the cryptocurrency gets only 20% interest, the compound interest over this period would be 22%. But if it gets 100% interest, the compound interest would be 300%, which is a totally different situation.

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Automatic compound interest🔥

So now that you understand the power of compound interest, let us move a bit further to the concept of automatic compound interest.

Just imagine that you can get compound interest on your staked cryptocurrency with literally no effort — the machine would do it all for you. Sounds pretty awesome, right? And what is even more impressive is that this technology has already been implemented in DeFi and will undoubtedly become more popular in the future.

We might have our own news on the automatic compound interest, but let’s keep it low-key for now if you don’t mind. We promise to spill it out really soon, so stay tuned!

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Team DeHive

An experienced team of blockchain enthusiasts behind the growth and development of DeHive DeFi protocol