When it comes to cryptocurrencies, Ethereum is second to none. The smart contract platform has become the go-to choice for developers looking to create decentralized applications. But does Ethereum have a yield?
The answer is no… and sort of. Let’s take a closer look.
What is Yield?
Before we can answer the question, we need to first define what we mean by “yield.” When it comes to investments, yield is the return on investment expressed as a percentage of the original investment.
For example, if you invest $1,000 in a stock that pays $50 in dividends over the course of a year, your yield would be 5%.
There are different types of yield, but for our purposes, we’re interested in two in particular: current yield and yield to maturity.
Current yield is the annual income from an investment divided by the current price of the investment. In our earlier example, the current yield would be $50/$1,000, or 5%. Yield to maturity (YTM) is a bit more complicated.
It takes into account the current price of the investment, the face value of the investment (or par value), the coupon rate, and the length of time until maturity. For bonds, YTM is equal to the internal rate of return (IRR).
Now that we know what yield is, let’s take a look at why Ethereum doesn’t have one.
Why Ethereum Doesn’t Have a Yield
Ethereum doesn’t have a yield because it doesn’t pay interest or dividends like stocks and bonds do. Instead, Ethereum generates rewards for miners who validate transactions on the network.
These rewards come in the form of newly minted ETH tokens. So while Ethereum doesn’t have a yield per se, it does offer rewards for participating in its network.
These rewards are paid out according to an algorithm known as the proof-of-work (PoW). Under PoW, miners compete against each other to validate blocks of transactions. The first miner to validate a block is rewarded with ETH. The amount of ETH awarded per block varies over time and is designed to decrease as more ETH is mined.
Currently, miners receive 3 ETH per block which will be cut in half every 18 months or so (this process is known as “halving”). So while Ethereum doesn’t have a static yield like stocks and bonds do, it does offer potential rewards for participating in its network.
Conclusion: Does Ethereum Have a Yield? No… And Sort Of
Ethereum doesn’t have a static yield like stocks and bonds do because it doesn’t pay interest or dividends. Instead, it offers rewards for participating in its network which are paid out according to an algorithm known as proof-of-work (PoW).
So while Ethereum doesn’t have a traditional yield, it does offer potential rewards for participating in its network.