Crypto, unlike many traditional investment vehicles are able to constantly reward users, and allow for interaction with the network 24/7 365. Unlike traditional institutions that provide 'returns' at less frequent intervals. This provides a unique decision for holders as to when and how often they should be reinvesting their rewards...

When receiving rewards, (in this case for providing liquidity to a DEX) I wanted to illustrate to the community how reinvesting your rewards for a compounding effect will increase your annual APR%.

To illustrate the importance (and potential value) I'll use my own case as a real world example:

I have 4,898.27 MOONs currently staked on SUSHI and want to ensure that I get the best possible returns, from the current average APR of 65.08%.

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screengrab of my current LP

To illustrate the value of compounding your rewards I've prepared 2 scenarios, which could play out over the next 1 year. 1 shows the impact of leaving my investment alone, and how many rewards I'd receive under current conditions. The other shows the rewards I'll receive if I reinvest the rewards, monthly.:

This example uses the current 65.08% APY rewards that are offered on SUSHI, the example also assumes that the price of ETH and MOONs remain constant over the next 12 month period.

Here's how the value of my 4,989.27 MOONs would changes over the next year, when comparing monthly reinvestment vs. not reinvesting the rewards:

Without Compounding:

• In this case, you simply get the 65.08% reward over the year.
• Under current rewards: 4,989.27 x 1.6508 = I would end the year with 8239.42 MOONs.
• Total potential MOONs earned in 1 year = 3,250.15 MOONs

With Compounding (Monthly):

• To find the monthly compounding rate, we use the formula: (1 + APY)^(1/n) - 1
• (1 + 0.6508)^(1/12) - 1 = 0.04265 or about 4.265% monthly.
• Over 12 months, this would be: (1 + 0.04265)^12 = 1.7210 or a 72.10% increase.
• Under current rewards: 4,989.27 MOONs would grow to 4,989.27 x 1.7210 = I would end the year with 8586.83 MOONs
• Total potential MOONs earned in 1 year = 3,597.56 MOONs

Difference:

• With monthly compounding: 8586.83 MOONs
• Without compounding: 8239.42 MOONs
• Difference = 3,350.15 - 3,597.56 = 347.41 MOONs

By reinvesting your rewards monthly, you would end up with approximately 347.41 more MOONs at the end of the year, assuming a 65.08% APY and that asset values remain constant.

^notes:

• ^{I am assuming the value of ETH and MOON stay constant in this example}
• ^{I am not taking into account the cost of network fees (avg. = .02/transaction})
• ^{I am using the current (9/8/23 APR % being offered through SUSHI for the MOON/ETH pairing for my example})

TL/DR- You will earn more rewards through compounding interest by reinvesting your rewards regularly.