Yield

📝 Definition:

Yield is the profit you earn from putting your cryptocurrency to work, like by staking, lending, or yield farming.

It’s the extra money you get as a reward for locking up or lending out your crypto.

🔑 Key Features:

  1. Earnings: The profit you make from your crypto investments.
  2. Types: These can include interest, payouts, or other rewards.
  3. Measurement: Usually shown as a percentage.
  4. Variable Rates: Yield rates can change based on how the market is doing.

⚙️ How It Works:

  1. Invest in Crypto: Put your money into cryptocurrencies or crypto-related products.
  2. Earn Rewards: Depending on the type of investment, you earn rewards over time.
  3. Calculate Yield: Yield is calculated based on the amount you invested and the profit you earned.
  4. Reinvest or Withdraw: You can reinvest your earnings or withdraw them.

💡 Applications:

  1. Staking: Earn yield by holding and locking up your crypto in a wallet.
  2. Lending: Lend your crypto to others and earn a profit.
  3. Yield Farming: Participate in decentralized finance (DeFi) platforms to earn high yields.
  4. Payouts: Some cryptocurrencies pay regular rewards to their holders.

🔍 Example:

Imagine you put $100 in a savings account that pays 5% extra money per year.

At the end of the year, you earn $5.

That's the yield, or interest, you get for keeping your money in the account.

In the crypto world, if you invest $100 in a staking pool with a 10% yield, you earn $10 by the end of the year.

👀 APY vs. APR:

APY (Annual Percentage Yield): Shows the real rate of return you can get on your investment, taking into account the effect of compounding interest (which means reinvesting interests).

  • Example: If you put $100 in a savings account with a 5% APY, and the interest compounds monthly, you would earn about $5.12 by the end of the year.

APR (Annual Percentage Rate): This shows the yearly cost of borrowing or the annual return on investment without considering compounding interest.

  • Example: If you take out a $100 loan with a 5% APR, you would pay $5 in interest by the end of the year, if there is no compounding.