Cryptocurrency Staking
Cryptocurrency staking is a means of earning passive income in the form of cryptocurrency rewards, similar to earning dividends or interest on a traditional investment. Sometimes you may have to lock up your cryptocurrency asset for a period of time in order to earn staking rewards. Generally, the longer you are willing to stake your cryptocurrency asset, the higher the rate of reward. Withdrawing early may result in a penalty and/or forfeiting any accumulated reward. The rate of reward is expressed as APY.
APY
APY stands for Annual Percentage Yield. It is the annual rate of return earned on an investment with compounding interest. APY is not a concept that is specific to cryptocurrency.
Compounding Interest
Compounding interest is calculated periodically. The interest is added to the balance of the investment and the next time interest is calculated it is based on the new balance (the original amount plus the previous interest earned). With each compounding period, the investment balance gets a bit bigger and the interest earned on the balance gets a little bigger as well.
Compounding Frequency
Compounding Frequency refers to how often interest is added to the principal investment. It may be daily, weekly, monthly, annually, etc. The compounding frequency will vary across investments.
APY Calculator
If you would like to explore what kind of APY return you will earn on your staking investment, here is a simple APY calculator.