Net Present Value

Net present value is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. A positive NPV indicates that the projected earnings generated by a project or investment exceed the anticipated costs.

In crypto, this is used to evaluate the profitability of participating in yield farming, staking, or liquidity provision. It is a fundamental tool for capital budgeting and decision-making.

By accounting for the time value of money, it helps investors decide whether to commit capital to a specific protocol. Projects with higher NPVs are generally considered more attractive, assuming risks are adequately managed.