Clarification on staking rewards?

Hi guys. I’ve seen people on YT mention that people who stake can expect an annual return of between 7% and 10%. However, I asked a question on the telegram group the other day about what the staking rewards will be for those of us who chose to delegate our ADA, and someone in the group gave the following answer:

This is where I became confused and replied:

His answer…

So can anyone confirm what he is saying? Will we be getting 5% on our ADA every 5 days, and will be able to compound those rewards every 5 days? Or did I misinterpret what he was saying? How does 5% staking rewards every 5 days = 7-10% annualy?

The rewards will compound from epoch to epoch but the annualized rewards are still in the 5-10% range.

Since an epoch is 5 days, there are about 365 / 5 ~= 73 epoch per year. That means that the per epoch reward will be in the range 0.068% to 0.14% per epoch. Where 0.068 ~= 5 / 73 .

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Thank you very much for the swift reply Eric d. much appreciated. I understand now, that makes a lot more sense. I would have been worried had it been based on my initial assumption on what was said by the gentleman in the telegram group. Even though he is right, I assumed that it was 5% per epoch. Obviously that would have had me scratching my head, as no crypto in the world can sustain those type of returns.

Glad you cleared that up and for the record 5 to 10% annually is still a fantastic return. I have to wonder though…given that each epoch is compounded on top of each other, wouldn’t that mean the actual Ada returns are higher than simply a flat 5%?

I think @erikd was pretty clear that annualized rewards will be 5-10% after compounding is taken into account.

Ok thanks, still very exciting :slightly_smiling_face: