The APY Craze is Full Throttle

Understanding LP

There is no doubt about it, some APYs people have seen recently are getting a bit crazy.  10,000% APY, 50,000%100k, a million, the list goes on and on.  Before we can diagnose the APY, where it comes from, and what it means for your wallet, we need to understand where these situations are coming from.

Staking and Yield Farming is not new.  Staking was introduced in 2012 and many projects use PoS or Proof-of0-Stake to secure their networks.  Staking is when someone locks a single asset into a smart contract or address as a way to build a pool that will eventually handle the consensus of a network or governance.  That pool has then rewarded a portion of the transaction fees and everyone who helped stake will get a piece of the pie.  

Staking also helps to stabilize the network as more people who lock their tokens will not be trading them on the open market.

Yield farming was introduced in 2019.  Yield farming is slightly different from staking in the way that Yield farming uses 2 or more assets and is designed for trading purposes.  This means that a user will lock up 2 assets into a smart contract and their assets will then be used on a DEX to provide liquidity for trading pairs.  The user will receive a “yield” which comes from fees, transactions, and governance rewards from the chain itself.

Ok, Stake, Farm - Now What?

While you are searching for your favorite yield farm, you will notice some ridiculously high APRs or APYs.  So we need to cover what they actually are.

APR will be a flat percentage that can be applied across the board to your capital.  APR is Annual Percentage Rate – You drop in %1000 and the APR is 10% – you walk away with $100 after a year.  This can be deli8vered Daily, Weekly, Monthly, Annually, or any other interval written into the smart contract.

APY on the other hand is the Annual Percentage Yield.  This is a HUGE difference as APY will calculate the Growth rate and the growth rate in yield farming is expected to be compounded.  This means that you take your profits and continually re-invest them back into the yield farm.  The growth here is exponential instead of Linear.  Something like this may allow you to earn 1% a day for 365 days but every time you collect you reinvest that in with your original capital – thus creating an exponential rate of growth.  Now when it’s all said and done you are looking at an APY of 36,500% and that nets you 1% a day that could be compounded 1-24 times a day for a year.


Goodbye October - Hello November

The Central banks want to tell you that a good APY is 0.04 – 0.26%

This is because they are as greedy as the day is long and don’t want to part with any money.  They pocket the rest and they give you some crumbs.

What's Hot in the AltCoin World?

DeFi on the other hand is not Greedy.  DeFi wants to pay you what you are worth for risking your capital on their platform.  No one feels sorry for the banks and no one ever should.

This is only the tip of the iceberg when it comes to LP Farming and passive income but I just wanted to shed some light on these topics.  Remember that these numbers change as more capital gets locked and your piece of the pie shrinks – and thus – so does your reward.

Oh yeah, and …GALA.

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