The Compounding Power of Staking Rewards

Key Takeaways

1. A look at the power of compounding
2. Re-staking rewards offers an excellent way to compound wealth
3. A simple example to illustrate the effect of compounding
4. Maximizing compounding with MATIC, ATOM, and KAVA

For links to resources within the article and to see the FAQs, please read this article on our blog.

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 14% and ATOM inflation is 10%. That means that your real yield is 4%.

Understanding compounding

Compounding is the process of earning interest on the principal amount of an investment and any accumulated interest or rewards over time.

Compounding is a powerful wealth-building strategy. Reinvesting your earnings/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.

By staking ATOM, KAVA, and MATIC, you can harness the power of compounding to increase your passive income and accelerate your journey toward financial independence.

How staking rewards compound

Staking ATOM, KAVA, and MATIC tokens helps secure those networks and pays you additional tokens as rewards. These rewards can be reinvested or “re-staked” to increase your overall staking balance.

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.

Conclusion

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.