What is Compound Interest in Crypto?
Start investing early and you can reap the rewards of compounding interest to achieve financial freedom!
When younger readers reach out and ask us for advice, we oftentimes tell them that ‘time is on your side‘ so START EARLY! Celsius Network offers sustainable reward rates which are compounded weekly. This ‘compound interest’ or ‘compounding interest’ is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
You can think of compound interest as ‘interest on interest‘ which increases the value of your portfolio as well as your return on investment (ROI) at a much faster rate than ‘simple interest‘ which is interest only on the principal. In fact, compound interest is arguably the most powerful force for generating wealth ever conceived.
How Does Frequency of Compounding Interest Affect Your Investments?
The rate at which compound interest accrues depends directly on the frequency of compounding. Therefore, the higher the number of compounding periods over the same amount of time, the greater the compounding interest. This is because the ‘interest on interest’ effect will generate increasing positive returns based on the principal amount. Each compounding period takes into account both the principal amount (how much you initially invested) plus the accrued interest (or rewards) which also earns interest.
Therefore, if you are looking at a one (1) year time period, weekly compounding interest will accrue greater interest (or rewards) when compared to monthly or quarterly. At the same time, hourly compound interest will generate higher interest (or rewards) when compared to daily compounding frequency. Here’s a deep dive into how ‘Compounding Frequency Affects ROI’.
So how does Compound Interest through Celsius rewards work?
Celsius Network is the leader in sustainable and consistently high reward rates that is paid out weekly. Rewards start accruing by the second as soon as you make a deposit into your Celsius wallet. The weekly reward payouts are automatically added to your principal amount, and accrue rewards for the following week. This ‘compounding’ effect generates much higher returns over time.
Other Centralized Finance (CeFi) platforms offer different compound interest frequency. Some offer hourly or daily compounding interest payouts (which is more frequent than Celsius) while others offer monthly compound interest payouts (which is less frequent than Celsius). Some crypto platforms do not automatically ‘reinvest’ your reward interest. Therefore, your investments don’t enjoy any of the benefits of compounding interest.
We believe that Celsius’ compound interest offering is the best in the industry. Combining sustainable reward rates with weekly payouts that are automatically reinvested to earn more rewards is simply incredible.
How Much Can I Expect to Earn Through Celsius’ Crypto Compound Interest Model?
As with everything we do, we want to ‘look behind the curtains’, crunch some numbers and present them in a way that is both informative and easy to understand. In order to better explain the compounding interest model for crypto investments with Celsius, we’ve used 3 examples:
- Celsius Token > starting with 100 CEL with a 4.86% APY
- Bitcoin > starting with 0.1 BTC with a 6.20% APY
- Stablecoins > starting with 100 USDC with a 8.88% APY
Please note that these examples use Celsius’ in-kind reward rates compounded over 25 years. We also assume that the reward rates do not change. In addition, if asset price increases, then your ROI would be even higher. If asset price decreases, then your ROI would be lower.
|End of Year||Celsius Token|
And remember, you can earn weekly compounding rewards on over 40 crypto assets right now! And the Celsius reward rates can get a turbo boost if you have Loyalty status and you opt to earn in-CEL (up to 25% higher weekly compounding reward rates!)
So what does the above chart tell us? See below…
Celsius CEL Compounding Rewards
A Celsian earning 4.86% APY in-kind for their CEL tokens can double their CEL stash within 15 years and triple within 23 years assuming the weekly compounding reward rates remain the same. After 25 years, your original 100 CEL becomes 327.53 CEL tokens (increase of 227%).
However, please note that this does not even account for CEL token price appreciation. Let’s predict that CEL price will double within 5 years. Your original principal of 100 CEL will double in value, but you’ve also earned an extra 26.78% more CEL tokens, thereby bumping up your return on investment even more!
BTC Compounding Rewards on Celsius
When looking at BTC earning 6.20% APY in-kind, a Celsian can double their BTC stash within 12 years, triple within 18 years and quadruple within 23 years assuming weekly compounding reward rates remain the same. After 25 years, your original 0.1 BTC becomes 0.449896815 BTC (increase of 350%).
Again, this does not take into account BTC price appreciation. Let’s predict that BTC price will double within 10 years. Your original principal of 0.1 BTC will double in value during this time, but you’ve also earned an extra 82.49% more BTC.
Celsius Stablecoin Compounding Rewards (USDC)
The most incredible example of the 3, stablecoins such as USDC earning 8.88% APY in-kind will double in 8 years, triple in 13 years, quadruple in 16 years and more than 7x within 25 years. After 25 years, your original 100 USDC becomes 838.89 USDC (increase of 739%).
Of course, stablecoins such as USDC are pegged to the USD so there is no price appreciation. However, an increase of over 700% over 25 years can make you wealthy and give you financial freedom.