Crypto glossary
Return on investment (ROI)
Return on investment (ROI) measures the gain or loss on an investment relative to its cost, usually as a percentage, ideally after fees.
The basic formula is the current value minus the total cost, divided by the total cost. Buying 1,000 dollars of a token that is now worth 1,500 gives a 50% ROI. A realistic calculation includes trading fees, network fees, spreads and, where relevant, taxes, and counts staking rewards or airdrops received along the way.
ROI is the most common way crypto returns are quoted, from portfolio trackers to token tables showing ROI since an ICO or launch. Its weakness is that it ignores time: a 50% ROI over one month and over five years are very different results. Annualised return, or the compound annual growth rate, adjusts for that and makes comparisons fairer.
In crypto, ROI figures are often cherry-picked. Measuring from the lowest point or from a private sale price makes performance look spectacular, while most buyers entered at much higher prices. Unrealised ROI also disappears quickly if the position cannot be sold at the quoted price because liquidity is thin.
Example
An investor bought 0.5 ETH for 1,000 dollars two years ago, paid 15 dollars in fees and now holds it worth 1,600. Her ROI is about 58%, or roughly 26% a year annualised.