In DeFi, we all understand the power of compounding.
But just how important is the frequency?
Let's look at the math of daily, weekly & monthly compounding.
I’ve previously written about how important it is to earn interest on your crypto:
As you can see in the image above, the difference between compounding and no-compounding (blue line) is very significant.
So make sure to compound your yield!
Now let’s compare 3 different compounding strategies - monthly, weekly and daily.
At 50% APR, APY is as follows:
- Monthly - 63%
- Weekly - 64%
- Daily - 65%
Barely any difference between them, so it doesn't matter much at all!
At 100% APR, APY is as follows:
- Monthly - 161%
- Weekly - 169%
- Daily - 171%
Even here, there's barely any difference for weekly vs daily.
Monthly vs weekly is also not a huge difference, but it's not nothing.
At 200% APR, APY is as follows:
- Monthly - 536%
- Weekly - 612%
- Daily - 635%
Here, the differences become much larger.
At > 200%+ APR, it's critical to compound at least 1x/week.
150-200% APR or more is where I'd really start to consider autocompounders like @beefyfinance.
But remember they do still come with risk so it's all about the tradeoffs.
- Do you have the time / ability to compound manually? If yes, then do so.
- For APRs > 100%, compound weekly or more.
- Consider well-audited yield optimizers (autocompounders) if you are fully aware of the risks & can't compound manually.
Btw, I’ve also previously written about the difference between APR and APY if you're unfamiliar with the terms: