I have enough HP; So, for #HivePUD I decided to stake ten dollars worth of Hive-Engine tokens. Before the power up, I would like to recount an interesting discussion I had about compounded interest.
Compounded interest means receiving interest on interest. Compounding interest is one of the keys to financial success.
Pizza Staking Rewards
Yesterday, @hive.pizza launched a new staking rewards program. The program gives 12% annual interest based on the staked PIZZA in one's HIVE Engine account. The program executes daily.
The announcement for the staking program noted that the PIZZA token has only two decimal points. The minimum possible reward is 0.01 PIZZA. So users must have 30.5 staked PIZZA to start receiving the daily reward.
I believe the exact number is 30.4375 PIZZA as 1/(0.12/365.25)/100 = 30.4375. But, I will say 30.5.
So, I staked 30.50 PIZZA and started receiving 0.01 PIZZA a day.
I will receive 0.28 PIZZA in February.
I will not start receiving 0.02 PIZZA a day until my account has 61 staked PIZZA.
At 0.01 PIZZA a day, it will take 3050 days for my account to grow from 30.50 to 61.00 PIZZA.
That is a long time to wait for that extra slice of the cheesy stuff.
At a 12% annual interest rate, it takes about 8 years to double one's money. It is still a good rate. Plus I have access to the PIZZA command.
I found this a fascinating example of compounded interest. While I receive interest every day, because my investment is so small, I will not see the first benefit of compounded interest for 8 years!
Whenever you hear the word "compounded interest" you must look at the compounding formula. Basically, all interest is compounded. What really matters is the frequency of the compounding.
To receive a full PIZZA a day, I would need 30.05 * 100 which is 3,050 staked PIZZA. Even with this amount of PIZZA; it would take 30.5 days for me to see the daily interest increment to 1.01.
If I had 93,025 PIZZA; I would receive 30.5 PIZZA in interest a day (93025 = 3050 * 30.5). This is when I would see the interest on my account compounding daily.
12% is a great interest rate. The interest that I receive comes by inflating the amount of PIZZA floating on the market. So, it may not be a great investment.
It is simply an interesting example of compounded interest.
Daily Compounded Interest
It is common to encounter daily compounded interest. This happens when financial institutions balance the accounts every day.
The best type of interest is continually compounded interest ... which is a favorite topic of Calculus 101. I will leave it for a different day.
Compounded Interest and Power Up Day
The term "compounded interest" refers to receiving interest on interest. So, how does compounding work on HIVE?
It turns out that this concept of compounded interest is central to the Hive Formula.
The HIVE Rewards Pool comes by gradually inflating the total amount of HIVE on the market.
The system distributes the newly created HIVE to the accounts in the system.
The amount of HIVE POWER in an account determines the value of one's upvote. I have about 5000 HIVE POWER. The value of my upvote is worth something like 0.24 HIVE. Half goes to the author and half comes back to me as a curation reward. I get about 1.2 HIVE rewards a day when I upvote 10 times in the day.
The amount of HIVE POWER in my account increases when I press the "claim rewards" button.
This process of claiming and powering up rewards is the way that people compound interest on HIVE.
I also have a huge pile of alt-coins in my HIVE Engine account.
These alt-coins follow the same structure as HIVE. When I stake my rewards, I compound the interest that I receive for my coins.
To maximize the rewards for your account. It is good to keep an eye on the rewards and stake them regularlly.
Staking coins takes a little time. Time is the most valuable resource that any of us have. So, it is best to let the rewards build up a little bit before staking them. There are some programs that automatically stake the tokens.
Power Up Day and Staking
I am not a big fan of Power Up Day. While this monthly event reminds users of the importance of powering up their HIVE and alt coins.
#HivePUD asks users to forego the compounding of interest in their account so that they can power up 10 HP and receive a badge.
The reason one should power up is because powering up compounds the interest in one's account. But people should power up on their schedule.
Staking a Week's Worth of Rewards
I have enough HP. This month I transferred all of my HBD rewards to my Hive-Engine account. I had fun actively trading different coins. Actively trading helps increase the liquidity of the different coins which makes the platform more attractive to users.
The first step for using the program is to go to Hive-Engine and claim all outstanding tokens. This can take a while.
I then placed sell orders for all of the tokens I didn't want to stake. The button ended up producing this transaction which resulted in a slew of staking commands on Hive Engine.
The picture for this post shows me driving a metal stake into the ground with a hammer.
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