APY Meaning Explained: Earn Interest on Your Crypto with Staking

Peter Zoltan
| Editor:
Joseph Kennedy
May 22, 2024
6 min read

Crypto staking offers you a way to earn passive income on your cryptocurrency holdings, similar to how a traditional savings account earns interest. Instead of just letting your digital assets sit idle in a wallet, staking allows you to put them to work and grow your holdings over time. A key metric in crypto staking is APY - Annual Percentage Yield. APY represents the estimated annual return you might earn on your staked cryptocurrency. 

It's important to note that APY does not always offer a guaranteed return. Factors like market conditions, network performance, and the specific cryptocurrency you're staking can all influence your realized earnings. 

This article will explain APY, how staking works, the potential benefits, and some risks to be aware of. We will also provide a step-by-step guide on how to get started with Atomic Wallet native staking features. 

Some of the most popular cryptocurrencies offer substantial APY for staking. Source: StakingRewards

What is APY in Crypto Staking?

APY, or Annual Percentage Yield, is a crucial metric in crypto staking. It represents the estimated annual return you can expect to earn on your staked cryptocurrency. Think of it as the interest rate for your staked crypto assets. The higher the APY, the greater the potential return on your investment.

For example, since transitioning to a Proof-of-Stake (PoS) consensus mechanism, Ethereum (ETH) staking has offered an APY of around 5%. This means that if you were to stake 1 ETH, you could earn roughly 0.05 sETH (Staked Ether) over a year. As of writing, over $28 billion worth of ETH is staked on the Lido Ether staking protocol, highlighting the popularity of ETH staking.

It's important to remember that APY rates can fluctuate over time, based on several factors, including:

  • Network Inflation Rate: Some blockchains have a built-in inflation rate to incentivize staking participation. Changes in this inflation rate can impact APY.
  • Amount of Staked Crypto: As more cryptocurrency is staked across the network, the APY might decrease due to the distribution of rewards among more participants.
  • Validator/Platform Fees: Staking platforms often charge fees, especially when you unstake or withdraw your funds, reducing your overall returns.

Understanding APY is essential for making informed decisions about crypto staking. It helps you compare potential returns across different cryptocurrencies and staking platforms.

Lido is the most popular liquid ETH staking solution. Source: CoinGecko

Benefits of Crypto Staking and APY

APY staking offers several advantages for crypto investors. Here are some key benefits:

  1. Passive Income Potential: APY staking allows you to earn rewards on your crypto holdings without actively trading. For example, staking Cardano (ADA) could earn you around a 4% APY, meaning for every 100 ADA staked, you could potentially receive 4 additional ADA per year.

  2. Supporting Blockchain Networks: By staking your crypto, you contribute to the security and decentralization of the underlying blockchain network. Your staked assets help validate transactions and maintain the integrity of the network.

  3. Potential Long-term Growth: APY staking provides an opportunity for your crypto holdings to grow over time. For instance, staking Tron (TRX) allows you to earn rewards that can be reinvested (compounded) to potentially accelerate your earnings.

While APY staking offers attractive benefits, it's important to remember that cryptocurrency markets are volatile. Research both the specific cryptocurrency you want to stake and the staking platform before investing any amount. Furthermore, there are some potential downsides to staking that should be considered before locking up your stash of ETH or SOL. 

Risks of Cryptop Staking and APY

While APY staking presents potential benefits, it's essential to be aware of the associated risks before investing your cryptocurrency:

  1. Cryptocurrency Volatility: The value of cryptocurrencies can fluctuate significantly, even for established projects. This volatility means the overall value of your staked assets could decrease, potentially offsetting or even exceeding any staking rewards you earn.

  2. Lock-up Periods: Many cryptocurrencies have lock-up periods during which you cannot sell or transfer your staked tokens. For instance, Atom (COSMOS) has a 21-day “unbonding” period. This lack of liquidity means you can’t react quickly to sudden market changes.

  3. Platform Risks: If you utilize a third-party staking platform or exchange, you're vulnerable to security breaches, mismanagement, or even the platform shutting down. It's essential to choose reputable platforms with robust security measures.

  4. Slashing: In some Proof-of-Stake networks, validators can face penalties for improper behavior or going offline. These penalties, known as slashing, can result in a loss of staked funds.

  5. Regulatory Uncertainty: Regulations surrounding crypto staking are still evolving, and changes in the regulatory landscape could impact the legality or profitability of staking in the future.

Once familiar with the benefits and risks of staking your crypto, you can choose a staking platform or become a network validator. Since becoming a validator requires a considerable stash of crypto and expensive computer hardware, most users opt to stake through platforms that delegate crypto to validators. Atomic Wallet offers this feature for dozens of cryptocurrencies directly in the wallet. 

How APY Staking Works on Atomic Wallet

Atomic Wallet offers a convenient way to start APY staking various cryptocurrencies directly within its user-friendly interface. We'll use Solana (SOL) as an example, but the basic process is similar for most supported assets. Here's a step-by-step guide:

  1. Find the Staking Section: Open your Atomic Wallet and navigate to the "Staking" tab. Locate the cryptocurrency you'd like to stake.

  2. Check the Current APY: Atomic Wallet displays the current Annual Percentage Yield (APY) for your selected cryptocurrency. At the time of writing, Solana's APY is approximately 7%. Be aware that APY rates can fluctuate over time.

  3. Choose a Validator: When staking some cryptocurrencies, you'll be delegating your tokens to a validator that helps secure the network. Research and choose a reliable validator based on factors such as performance, commission fees, and commitment to the network.

  4. Stake Your Tokens: Enter the amount you'd like to stake and confirm the transaction. There's typically a small network fee associated with staking and unstaking.

  5. Monitor Rewards and Unstaking: Atomic Wallet allows you to track your staking rewards in real-time. Rewards are usually compounded into your staked amount for maximized earnings. If you decide to unstake, initiate the process within the staking section. Keep in mind that there may be an unstaking period before your tokens become fully liquid.

Atomic Wallet simplifies the staking process across various supported cryptocurrencies, not only Solana (SOL), however, it's crucial to understand the basics of staking and the specific factors influencing APY returns for each cryptocurrency. 

Thoroughly research any validator before delegating your tokens to them. Remember, cryptocurrency markets are inherently volatile, and APY staking carries risks. Always ensure you understand these risks before investing.

Calculating APY Returns

Calculating your potential APY staking returns is helpful when making investment decisions. While APY can fluctuate, a basic formula can provide an estimated return. For convenience, Atomic Wallet offers a built-in APY staking calculator. The calculator lets you input your desired cryptocurrency, the amount you want to stake, and the staking period. It will then provide estimated returns in daily, monthly, and yearly increments.

For example, let's say you want to stake 10 Ethereum (ETH) using the Atomic Wallet calculator. If the current APY for ETH staking is 5%, the calculator could display the following estimated returns: daily profit - 0.0013 ETH, monthly profit - 0.041 ETH, yearly profit - 0.5 ETH. The calculator will also show the approximate USD value of your ETH holdings, to put them into real-world terms. 

Atomic Wallet’s staking calculator provides an estimate of daily, monthly, and yearly returns on staked assets. Source: AtomicWallet

Tips for Maximizing APY Staking Rewards

To increase your potential earnings from APY staking, consider these strategies. Firstly, compare APYs across different platforms and cryptocurrencies, since they offer varying rates. Research and choose options with higher APYs for potentially greater returns. For example, if Cardano (ADA) offers a 4% APY and Polkadot (DOT) offers a 10% APY, staking DOT might yield higher rewards, assuming all other factors remain equal.

Secondly, on networks that utilize validators, select validators with a strong track record, high uptime, and reasonable fees. Validators with poor performance or excessive fees can decrease your overall earnings even if the base APY seems attractive. The more established a platform is, the better, so avoid getting lured in by unrealistic returns on overpromising platforms. 

Thirdly, take advantage of platforms that automatically compound your staking rewards, adding them back into your staked amount and potentially increasing your future earnings over time. Remember, as Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”

Final Thoughts on APY Crypto Staking

APY staking offers a potential avenue for earning passive income on your cryptocurrency holdings. By understanding APY, the benefits, and the inherent risks, you can make informed decisions about incorporating staking into your investment strategy. As always, it's crucial to remember that cryptocurrency markets are volatile and we should expect the unexpected.

Thorough research, due diligence to select reliable platforms or validators, and understanding the specific cryptocurrency you're staking are all essential. Staking can be a valuable tool within a well-diversified crypto portfolio, allowing you to potentially earn rewards while directly supporting the security of your chosen blockchain network.

Disclaimer: The information provided in this blog is for informational purposes only and does not constitute financial advice. Cryptocurrency markets are highly volatile; always conduct thorough research and invest at your own risk.

Subscribe to our newsletter
Sign up to receive the latest news and updates about your wallet.
Related Posts