Clear DefinitionsStaking APY
1 min read
Pronunciation
[stay-king A-P-Y]
Analogy
Staking APY is like the effective annual interest rate on a savings account when you reinvest your interest each month.
Definition
Annual Percentage Yield: the real rate of return on staked assets, taking into account compounding of earned rewards.
Key Points Intro
Staking APY calculation considers:
Key Points
Compounding frequency: How often rewards are restaked.
Nominal rate: Base issuance and fee earnings.
Reward reinvestment: Inclusion of rewards-on-rewards.
Variable rate: May change with network conditions.
Example
A protocol offers 5% APR with daily compounding; the effective APY is ~5.12%.
Technical Deep Dive
APY = (1 + r/n)ⁿ − 1, where r is nominal rate and n is compounding periods per year. On-chain data for reward distribution and restake frequency feed into the formula. Smart contracts may automate compounding to achieve the stated APY.
Security Warning
Projected APY may not account for slashing or downtime penalties; monitor net returns.
Caveat
High APY projections may attract attackers; extremely high rates often unsustainable.
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