- A look at the power of compounding
- Re-staking rewards offers an excellent way to compound wealth
- A simple example to illustrate the effect of compounding
- Maximizing compounding with MATIC, ATOM, and KAVA
You are well on your way to controlling your financial future by exploring crypto staking. In this article, we will dive deeper into the compounding power of staking rewards and how staking ATOM, KAVA, and MATIC can help you build long-term wealth.
Should I stake my tokens?
Staking is not for those who need their money liquid. If you might need to access your funds next week or next month, do not stake them.
For those with a medium to long-term time horizon, staking is something to seriously consider.
Not only does staking provide passive income for supporting the network, but those who choose not to stake get diluted by inflation.
You see, new tokens are issued to incentivize people to build on and use the network. The rate of new token issuance is called, inflation.
Those who stake gobble up the new token supply, while those who don’t stake own a decreasing percentage of the overall pie.
As of January 2024 ATOM staking APR is around 14% and ATOM inflation is 10%. That means that your real yield is 4%.
Compounding is the process of earning interest on the principal amount of an investment and on the accumulated interest or rewards over time.
Compounding is a powerful wealth-building strategy. As long as the token price stays constant or rises, reinvesting your staking rewards results in faster portfolio growth.
At Blocks United we have chosen to run infrastructure for and support Polygon, the Cosmos Hub, Kava, and HydraDX.
How staking rewards compound
As your balance grows, so do the rewards you earn. That creates a compounding effect that can significantly enhance your long-term returns.
Staking crypto to compound wealth
Imagine you start staking 1000 ATOM tokens with an annual percentage yield (APY) of 14%. Please know that staking yields fluctuate, but we will use 14% for this example.
After one year, you would earn 140 ATOM rewards (1000 * 14%). If you restake those rewards, your new staking balance would be 1140 ATOM.
In year two, you would earn 159.6 ATOM rewards (1140 * 14%). Restaking your 159 ATOM rewards would give you a staked balance of 1299 ATOM tokens.
In year three, you would earn 181.86 ATOM rewards (1299 * 14%) and after reinvesting your 181 tokens you would have a new balance of 1480 ATOM earning staking rewards.
By continually restaking your rewards, your balance and earnings would grow much faster over time and that’s without investing any additional cash.
Maximizing compounding with ATOM, KAVA, and MATIC
To take advantage of compounding it is essential to choose tokens with strong fundamentals, like ATOM, KAVA, and MATIC.
ATOM’s tokenomics will drastically improve with the ATOM Economic Zone.
The most widely used stable coin in crypto, USDT just launched natively on Kava.
And, Polygon’s 2.0 vision for taking advantage of zk architecture should help to infinitely scale Ethereum.
These projects offer attractive staking rewards and have the potential for long-term growth. Those factors increase the likelihood of sustained returns.
ATOM: Staking ATOM offers attractive rewards, with APY historically around 14%. That high yield has attracted developers and users, but is likely to come down over time. Cosmos focuses on blockchain interoperability, which positions it well for future growth.
Rather than a single L1 blockchain dominating web3, we believe there will be many blockchains and they will all want to communicate with each other. As more projects adopt the Inter-Blockchain Communication (IBC) protocol, ATOM stakers will collect some of that value.
KAVA: Staking KAVA can also yield rewards ranging from 10% to 20%, depending on network activity and inflation. KAVA’s DeFi platform and multi-chain architecture give it a competitive edge in the rapidly growing DeFi space. That supports its potential for long-term appreciation.
MATIC: Polygon’s MATIC staking rewards range from 4% to 6% APY. As a Layer 2 scaling solution for Ethereum, MATIC benefits from the growth of the Ethereum ecosystem, making it an attractive choice for long-term staking. Polygon’s 2.0 vision and roadmap make the project even more compelling.
The Polygon team is constantly innovating and forming partnerships with companies like Nike, Starbucks, Disney, and Draftkings.
If you are reading this, you understand the value of multiple income streams and the importance of strategic decision-making.
Staking provides an excellent opportunity to diversify your assets, capitalize on the growth of innovative blockchain projects, and create a compounding source of passive income.
It is important to remember that crypto assets are highly speculative and token prices can fluctuate wildly. The fiat value of staking rewards constantly changes. Never invest more than you can afford to lose.
However, staking ATOM, KAVA, and MATIC tokens with a long-term time horizon and compounding your rewards can have a huge impact on your wealth and financial future.
Be on the lookout for the next article in our series: How To Choose The Right Cryptocurrency For Staking.
Want to stake your tokens now?
Frequently Asked Questions
Compounding can simply be stated as earning yield on your original investment and then yield on your yield.
Compounding is important because it can drastically speed up the rate at which you accumulate wealth. Your principle and the yield it earns grow together.
Staking rewards may compound automatically, but most of the time you must manually claim and re-stake them. The more often you claim and re-stake, the faster your stack compounds.
There are far too many tokens to keep up with this. Generally speaking, newer projects offer higher staking rewards vs mature projects.
We do not currently participate in the REstake app. It requires validators set up and manage a separate wallet. That is an additional attack vector, so we are watching REstake to make sure it works without making us vulnerable.
Nothing we say is financial advice or a recommendation to buy or sell anything. Cryptocurrency is a highly speculative asset class. Staking crypto tokens carries additional risks, including but not limited to smart-contract exploitation, poor validator performance or slashing, token price volatility, loss or theft, lockup periods, and illiquidity. Past performance is not indicative of future results. Never invest more than you can afford to lose. Additionally, the information contained in our articles, social media posts, emails, and on our website is not intended as, and shall not be understood or construed as financial advice. We are not attorneys, accountants, or financial advisors, nor are we holding ourselves out to be. The information contained in our articles, social media posts, emails, and on our website is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided in our articles, social media posts, emails, and the resources on our website are accurate and provide valuable information. Regardless of anything to the contrary, nothing available in our articles, social media posts, website, or emails should be understood as a recommendation to buy or sell anything and make any investment or financial decisions without consulting with a financial professional to address your particular situation. Blocks United expressly recommends that you seek advice from a professional. Neither Blocks United nor any of its employees or owners shall be held liable or responsible for any errors or omissions in our articles, in our social media posts, in our emails, or on our website, or for any damage or financial losses you may suffer. The decisions you make belong to you and you only, so always Do Your Own Research.