Return on Investment (ROI)

In simple terms

ROI measures how much money you made or lost on an investment compared to what you put in. If you invested $100 and it became $150, your ROI is 50%—like earning half your money back on top of the original amount.

Definition

The percentage gain or loss from an investment.

In depth

ROI is calculated as (Current Value - Initial Investment) / Initial Investment × 100%, expressed as a percentage. In crypto contexts, ROI accounts for the volatility of digital assets and may be measured over different timeframes—from block times to annual yields in staking protocols. Yield farming and liquidity mining strategies use ROI metrics to compare returns across different smart contracts and pools, while validators and stakers assess ROI by evaluating block rewards, gas fees, and slashing penalties relative to their capital locked in consensus mechanisms.

How does Return on Investment (ROI) work?

ROI is one formula: subtract the total cost from the final value, divide by that cost, and express the result as a percentage. Costs include fees, and final value should be net of the fees paid to exit, or the figure flatters the result. The output is a ratio, which is why a $50 gain on $100 and a $5,000 gain on $10,000 both read as 50 percent. ROI carries no sense of time — 50 percent over one month and 50 percent over five years look identical — so annualizing is needed for comparison. It also says nothing about risk taken.

An example

Illustrative figures. Someone puts $1,000 into a holding and pays $10 in fees, so total cost is $1,010. They exit at $1,300 and pay $13, netting $1,287. Net gain is $277, and ROI is $277 divided by $1,010, or about 27.4 percent. Ignoring both fees would have shown 30 percent. If the holding period was three years, the annualized figure is closer to 8.4 percent.

Figures are illustrative only.

What beginners get wrong

• Omitting trading fees, network fees, and spread inflates ROI; the honest calculation uses the amount actually paid and the amount actually received.
• Comparing a three-month ROI against a three-year ROI is meaningless unless both are converted to an annualized figure.
• Unrealized ROI can reverse entirely before a position is closed, so a percentage on a screen is not money received.
• Past ROI describes what already happened and is not a forecast; it says nothing about what any future period will produce.

Related terms

• Capital Gain
• Capital Loss
• Capital
• Portfolio
• Dollar-Cost Averaging (DCA)
• Paper Trading

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