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When using a staking platform such as Binance Earn, you might be wondering what “APR” means and its use when staking your Crypto.
If you already know what it means, then you’re probably wondering how APR is calculated when staking your crypto on any given platform.
Worry not. It’s normal to be bombarded with investment terminologies such as this one. That is why I highly look forward that after reading this article, you will understand what APR means and how it is calculated.
What is Annual Percentage Return (APR)?
The yearly interest that’s generated by a sum that is charged to borrowers (the staking platform) or paid to investors (stakers) who are staking/lending their crypto is called the Annual Percentage Rate (APR).
APR is expressed in terms of “simple interest” as a percentage representing the annual income earned from staking your crypto. Fees, additional costs, and other factors associated with the transaction are included.
Many staking platforms such as encourage investors to stake their crypto by offering them a specified amount of APR depending on the coin/token that is staked as well as the period the crypto has been staked.
Different exchanges offer different rates, and these interest rates may vary substantially depending on the type of staking option you choose (fixed or flexible) or what cryptocurrency coin/token you staked.
How is APR Calculated?
A method used for calculating APR or the interest an investor receives for staking their crypto is called Simple Interest. To calculate the APR which is expressed in simple interest:
- Multiply the given interest rate or APR (varies on what the exchange offers) by the principal (amount of crypto you want to stake). Then multiply that by the number of years that elapse between payments.
Variables:
- I = Interest Rate in %,
- P = Principal/amount of crypto you want to stake
- N = number of years that elapse between payments.
Formula: APR = Interest Rate x Principal x N
Example:
If you stake your 10,000 USDT with an APR of 10%, after a year, you will receive:
- 10% x 10,000 USDT x 1 Year = 1,000 USDT per Year
Then, after one year, you may withdraw the 10,000 USDT that you staked along with the 1,000 USDT you were rewarded with, giving you a total of 11,000 USDT (reduction fees are not included).
Important Note:
This doesn’t mean that you have to keep your crypto staked for a year. In simple terms, this is simply the calculation of the interest rate you will be rewarded with if you staked your crypto for a year.
- If you want to calculate the daily interest you will earn or DPR (Daily Periodic Returns), simply divide the result of your APR by the number
of days in a year. That’s the amount of interest you will earn in a day.
There are APR and DPR calculators online, so you don’t have to worry about the hassle of manually calculating them. Plus, exchanges like Binance will already calculate the amount of interest that you will be rewarded with.
The calculation will vary on different factors, that is why we will Binance Earn as an example to solidify your understanding of APR.
Calculation of Interest With Binance Earn
Binance is the world’s largest crypto exchange in terms of trading volume. They offer various investment options such as Binance Earn. They have flexible savings and locked staking products.
- Example #1: Flexible Savings
Binance’s Flexible Savings shows you the estimated daily interest you will earn for staking your crypto. You will only be shown the daily interest you will receive, but the APR does not change.
- Staking 5 AVAX with 3% APR gives you 0.15 AVAX per year. Divide that by 365 days and you will receive 0.000411 AVAX per day.
The interest rate will vary on Binance Earn’s APR Tier Rate, changes in
APR due to economic factors, and what coin/token you will deposit.
- Example #2: Locked Staking
Binance’s Locked Staking option shows you the estimated interest you will earn for staking your crypto for a specific period. In this example, if you stake 1000 AVAX for 120 days with an APR of 18.90%, you will receive 189 AVAX if you were to stake 1000 AVAX for a year.
Binance only offers a locked staking period of 30, 60, 90, and 120 days to choose from. Because we chose the 120-day period, Binance will only show us the interest that will be earned after 120 days, not after a year.
The calculation of your 120-day interest is simple:
- Divide the annual returns of 189 AVAX by 365 days and you will receive 0.52 AVAX per day. Then multiply that by the number of days you will lock your coin (120), then you will receive 62.1372 AVAX after 120 days.
There is no APR Tier Rate when using Binance’s Locked Staking. But like Binance’s Flexible Savings, the interest rate will vary on changes in APR due to economic factors and what coin/token will be staked.
Closing Thoughts:
Platforms like Bybit use APY (short for Annual Percentage Yield) when rewarding their customers when customers stake their crypto assets.
I’ll be writing an article about APY and how it is calculated soon. I’ll also use examples from Bybit’s staking platform to solidify your understanding of our next topic, so stay tuned by following me on Medium:
You can also read my previous article here:
Then finally, if deeper knowledge about Binance Earn is what you seek, you can learn more about that from Binance Academy here:
List of References:
- DeRose, C. (2022). What is APR (Annual Percentage Rate) in Crypto? Morioh. Retrieved from https://morioh.com/p/89f1d2544c47
- Fernando, J. (2022). Annual Percentage Rate (APR): What It Means and How It Works. Investopedia. Retrieved from https://www.investopedia.com/terms/a/apr.asp
- Hayes, J. (2021). Simple Interest Definition: Who Benefits, With Formula and Example. Retrieved from https://www.investopedia.com/terms/s/simple_interest.asp#toc-simple-interest-formula-and-example
- What is the daily periodic rate & how do you calculate it? (2022). Chase. Retrieved from https://www.chase.com/personal/credit-cards/education/interest-apr/calculate-daily-periodic-rate
