APR & APY
On services such as Mintscan, REStake, Staking Rewards and so on you can often see a separate graph with the calculation of APR and an approximate calculation of APY. What do these percentages mean to you? These indicators significantly affect your rewards when you staking.
APR
APR is the annual percentage rate. Imagine that you delegated your tokens once and did not touch them. In a year you will earn this APR percentage. Plus, you should pay attention to the validator’s commission — it affects your income — the lower the commission, the more you earn!
APY
APY stands for annual percentage yield. It sounds very similar to the first concept, but, in fact, it is not quite true. After the staking, you will receive rewards of the selected network, the percentage of which is different in each network. So, if these rewards are regularly collected and restaked, then the total percentage of income will grow. This is APY. It is important to remember that the collection of rewards itself implies a certain percentage of the commission from the network.
It doesn’t make sense to collect rewards and restake very often, because the percentage of APY will not change so much. It is enough to manually restake your rewards just once a day. And there is also a wonderful REStake app service that collects rewards for you and restakes to the network. Just here you can see the approximate value of APY, which is significantly different from APR. The advantage of REStake is also that the validators will pay the transaction fees for you.
CALCULATION
How do I calculate APR and APY on my own? Let’s start with APR. Here we will need two indicators — inflation and the total percentage of Bonded tokens. These values can be found on Mintscan. Let’s take the Cosmos network as an example. At the moment, about 63% of the tokens are bounded. Inflation is about 12%. All we need to do is divide the percentage of inflation by the percentage of bounded tokens. It turns out to be about 19%. This means that in a year you will earn 19% of what you have staked.
In some networks, the APR may differ due to the fact that the network does not distribute all the inflation to the stakers. For example, in Osmosis, only 25% of new tokens goes to the stakers. And, accordingly, APY will also be different.
Here is the more complex one — APY. It can be calculated in two ways: manually using a formula or using a compound interest calculator.
If, for example, you will restake your rewards every day, then at the end of the year you will receive almost 19% on top of the initial amount of money you have staked on Cosmos. But in some networks it is even more profitable! Just remember one nuance: during the unbounding, you will not receive rewards.
This is all the necessary information about APR & APY. If you still have any questions — ask freely and we will respond to you.
Stay tuned so as not to miss anything interesting in the Cosmos ecosystem!
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