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What APY and APR Means - How calculate them in your Defi Pools and Farms - What is APY and APR - YouTube
Channel: Crypto Currency State
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hi crypto fans welcome to ccs
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cryptocurrency state my name is santiago
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i'm a web developer and investor in
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today's video we are going to understand
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what is apy and apr and why this is
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important if you want to enter into the
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d5 war and put your money into pools and
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yield farmings
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to earn some passive incomes before we
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begin please like the video subscribe to
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the channel and click the bell to get
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the notifications and without any
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anything else let's go into it
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[Music]
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hey guys well today we are going to
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understand correctly what is api and
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what is ipr and why this is important
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actually you may be already using
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liquidity pools and farming pools and
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everything on defy space and you may not
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understand correctly this and this is
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important to calculate your earns when
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you loan money to other people in in
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those diva ecosystems
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i made in this video thanks for to
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richard one of our followers because he
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put this in my attention and i think
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this is important to understand so thank
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you richard for this if you want me to
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do any video or any topic or any coin
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that you are interested please comment
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below in the comments in all videos i
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read all the messages and i write in in
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a notebook all day all the comments that
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you put all the projects that you want
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to review and eventually if i review
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them and looks interested i share here
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in the video with all of you
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so
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um both are used to calculate interest
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for investment and credit products and
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you can see for example if i go here to
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the pools on pancake swap you can see
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how they say ap r and apa
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this is important so you need to
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calculate this before entering anything
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to be sure that you are in the best
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in the best investment opportunity right
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there
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so and they significantly affect how
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much you earn or must pay
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when they apply to your account balances
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so what is api
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stands for annual percentage yield takes
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into account compound interest and this
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is the most important thing of the
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difference between one and the other the
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compound interests and what is this
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the company interest is the interest on
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a loan or a deposit calculated based on
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both the initial principal and the
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community interest from previous periods
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so for example
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if you loan 100 to somebody
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you will have 12 percent of interest api
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[Music]
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and the interest is paid monthly so
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you
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give 100
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to a person and you will charge a 12
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percent of interest api
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and this person will pay you monthly
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so this means that you loan 100
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next month you get the one percent
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because one year is 12 months so this is
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12
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per year
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so in this case you will get one dollar
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of interest on that month correctly
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so your capital now is 101
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with the first month of interest charged
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so the next month you will get your one
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percent
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as also but it will be calculated based
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on 101 and not 100
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because this is what means compound
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interest
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and not 100 so this make your capital
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after two months 102.1
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and this will continue the next month
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each of the one percents it will
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calculate of the total of the initial
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capital plus the interest that you
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already earned
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this is the main difference
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so what is apr
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financial institutions often to their
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credit products using apr since it seems
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like borrowers end up paying less in the
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long run
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for accounts like loans mortgages and
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credit cards
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apr doesn't take into account the
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compounding of interest within a
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specific year so basically that's the
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difference it is calculated but
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multiplying the periodic interest rate
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by the number of periods in a year
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in which the periodic rate is applied
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it doesn't indicate how many times the
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rate is applied to the balance so to
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calculate the apr you need to multiply
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the periodic rate
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for the number of periods in a year
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let's see an example of these
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two so a credit card company might
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charge one percent interest each month
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therefore the apr equals 12
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because it's the one percent of interest
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multiplied by 12 months so that is how
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you calculate the 12
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this is different from the apy
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which takes into account compound
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interest like we mentioned before before
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we continue with the video remember that
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i am doing an amazing giveaway i will be
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giving half of a bitcoin to one winner
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and five ethereum to five different
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winners if you want to participate it's
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super easy just a couple of clicks
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follow the link in the description but
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remember that you need to be subscribed
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to the channel with the bell on to be
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considered
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so the apy for one percent rate of
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interest compounded monthly would be
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12.68
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percent instead of 12
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and
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here you have the exact formula
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mathematical formula to calculate the
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apy
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if you
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only carry a balance on your credit card
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for one month period well you will be
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charged the equivalent yearly rate of 12
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because in the first month it will be
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the same you will not have compound on
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the first month
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however if you carry the balance for the
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year
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your effective interest rate becomes
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12.60
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as a result of compounding each month
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so i think this is pretty clear
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i took this information to many places
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to make it easy for you
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so the next time that you go into d5
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products you can see here and calculate
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for example
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um if you put cake here
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and
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also it's a automatic risk taking
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you have a pool here for
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cake tokens and you have another pool
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which is a manual click
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for ak tokens which one of these two is
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paying more for you if you allocate
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money here well in this case you can see
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apy 83.42
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and apr 61.58
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so
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if they pay in the same
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in the same amount
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this will be obviously and this pool is
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better because it will contain the
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compound interest on each month and you
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can see how they put in detail here
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because they say any funds you take in
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this pool will be automatically harvest
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and risk
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compound for you
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so basically what they say here is that
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when you get the first
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payment of the interest here
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that will be automatically
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increasing your initial capital on the
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next inter space it will be calculated
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based on that
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like i explained before
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and in the manual cake pool here
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if you open the details
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you can see you must harvest and
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compound your earnings from this pool
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manually so in this case when you put um
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i don't know 100k here you will get your
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interest to your wallet and it will not
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automatically enter here you need to put
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it again into the your initial capital
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and then the next payment it will
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contain that
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so kind of you can do your apr
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similar to an api if you
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api if you add it manually here so here
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is a
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a specific
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example on how this works so next time
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that you enter and put your money in any
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of the dfi ecosystem
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even in farming for example you can go
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to farms in pancake swap
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and if you put both both tokens you will
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be earning uh some of the tokens and you
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can see how all what is paid here's apr
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so now you understand what this means
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anyways in pancakes so you have a
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calculator that you can do this for you
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easy
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but many of the new things
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don't have a tool to calculate that so
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it's better that you
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understand this correctly
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well that is all for the video guys i
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hope you enjoyed maybe you already know
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that
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maybe not and this is something that can
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help you in other things not only in
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crypto
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that will be all for the video remember
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before we leave like the video subscribe
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to the channel and click the bell to get
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notifications and put in your comments
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if you want me to do any coin review or
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any topic review that you need
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i will see you in the next video bye
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