The Evia APY - The Math Behind Auto-Compounding

APR and APY are both important measures of the yield or return on investment in the Cosmos ecosystem. While they are related, they are not the same thing, and understanding the difference between them is crucial for making informed investment decisions.

APR stands for Annual Percentage Rate, and it represents the simple interest rate paid on an investment over the course of a year. For example, if you invest $1,000 in a Cosmos-based staking pool that offers a 10% APR, you would earn $100 in interest over the course of a year.

APY, on the other hand, stands for Annual Percentage Yield, compounding is the process of reinvesting the interest earned on an investment, so that the interest earns even more interest.

Let's say you decide to stake $1000 worth of Osmo tokens in a staking pool that offers a 21% APR, with daily reward distributions. At the end of the first day, you would earn 21%/365 = 0.0575% interest on your $1000, which comes out to $0.575. This would bring your total investment to $1000 + $0.575 = $1000.575.

On the second day, you would earn interest on the new total of $1000.575, which would be 21%/365 = 0.0575% of $1000.575, or $0.577. Adding this to your total investment would bring it to $1000.575 + $0.577 = $1001.152.

This process continues for the remaining days in the year, with interest being added daily to your initial investment. At the end of the year, your total investment would be $1000 x (1 + 21%/365)^365 = $1252.08.

This means that the effective APY, or annual percentage yield, would be:

($1252.08 - $1000) / $1000 = 25.21%

So, by taking advantage of the magic of compounding, you could earn a higher APY than the APR offered by the staking pool.

When you stake in a high APR ecosystem with frequent reward distribution cycle, you can see a dramatic increase in your APY. This powerful difference between APR and APY is the key to Wealth creation and Evia Network can be your companion in this mission!!