Cant wrap my head around how earning interest with crypto works with the underlying volatility. I would love some help with this example.
Token earns 5% APY. You invested $1000.
Token price at day 1 = $100. Token price at day 365 = $50 (it crashed).
Your investment after 1 year is $500 + (1000\*1.05) = 1550? Not possible. It has to follow the token price as it was falling right?
3 thoughts on “Interest earned vs underlying token price volatility”
Personally, I stake coins I am planning on holding long term. Interest paid is in the coin, not dollars until you sell. I look at it as averaging down using free coins. If the volatility bothers you, stake USDC.
Apy only considers the rewards given to you not the price of the rewards over time.yes price will impact your apy. If price goes up you make way more, if it goes down you make less.
It is 500 * 1.05.
Lets say you have X tokens, staking them for 10% APY. After 1 year, the price is Y. You would have in total X * 1.1 * Y money.