What is Apr & APY in crypto?

Regardless, when participants enter the crypto world, they are often bombarded with new terms and jargon. Whether one is yield farming, or lending or borrowing digital assets, the terms annual percentage rate (APR) and annual percentage yield (APY) usually pops up.

Are APR and APY the same thing?

To put it simply: no, they are not. APR is a simpler metric; it shows a constant yearly rate. APR is often shown as the amount of interest on personal loans or credit card debt. APY shows yearly rates too, but also includes compounding effects. The APY will go up or down, depending on how often the compounding takes place.

What is APY & how does it work?

APY is much like APR, except it takes the effects of compounding into account. Put simply, compounding is what happens when you earn interest on the previous interest. If John’s bank pays the interest per month, the total interest payment over the year will be different.

Why are APY & APR rates so high?

Due to the nature of the crypto market, APY and APR rates are often a few magnitudes higher than those you may encounter in the traditional finance industry. This opens up more lucrative return opportunities, but also carries more risks.