APY vs. APR in Cryptocurrency

A lot of people who are new to the crypto world get APR and APY mixed up and think they are the same thing. Even though APR and APY sound alike, they are not the same at all. So, a crypto investor, especially one in DeFi, should know the difference and make the most of each.

What is DeFi’s APY/APR?

APR and APY are the most important ways to figure out interest in the crypto world, so every crypto user has heard of them. APR and APY are used to figure out how much staking rewards, yield farming rewards, and crypto-earn accounts pay back, as well as how much money goes into liquidity pools on platforms and other things.

So, it is very important for a DeFi user to know the difference between APR and APY so that he can use his money more wisely and make the most money. But most crypto users still don’t know what the difference between the two is.

APR, which stands for annual percentage rate, is the interest that is added to the capital amount of a loan or investment every year. APR is like your simple interest or savings rate, and it is generally given as a fixed rate per year. If you keep a loan or property for less than a year, you pay interest on a pro-rata basis. If it is kept for more than a year, it is increased by the number of periods.

What Does “Annual Percentage Yield” (APY) Mean?

APY, which stands for yearly percentage yield, is similar to APR, except that it takes into account what happens when interest is added to itself. This means that interest rates that have already been paid are factored into the next interest rate, which will always be higher than the APR. In traditional banking, this is like the idea of “compound interest.”

Which is Better: APY or APR in Crypto?

Whether APR or APY is better for you relies on what you want to do. Most of the time, it depends on whether you’re an investor or a user. The APR is what a borrower would want, while the APY is what a trader would want.

If you take out a loan, whether it’s a personal loan or credit card debt, you pay off the amount as you go. So, you will definitely prefer to be charged in APR, since there is no compounding effect that would make your collected interest payment go up and cause the total amount you end up paying to go up as well. If you were charged in APY, the total amount you borrowed, including interest, would go up more than if you were charged in APR. This is true for both standard loans and crypto loans.

If you are a trader or a lender, on the other hand, you will definitely want to use APY because the effect of compounding will make your total return higher than if you used APR.

What is a good APY in cryptocurrency?

It’s hard to say exactly what a good APY is in crypto because there are other things to think about, like fees, costs, and the way interest is paid out. Some platforms may offer returns that are higher than average, but the hidden fees may make the total returns less appealing. Also, an investor needs to think about risk before choosing whether or not an advertised APY is appealing. Please read the piece we linked to above to learn more about the things that could affect your returns in crypto.

APY versus APR FAQ

Now that we know the difference between APR and APY and know when one is better than the other, let’s do some tasks to help us remember.

Which is Better for Crypto: APR or APY?

Which is better, APR or APY, relies on your goal, not on the asset class. If you are a renter, it doesn’t matter if you are taking out a loan for crypto or something else, you will want to be charged an APR rate. If you are an investor or give money to other people, you will want to get an APY rate.

What are APR and APY in Crypto Staking?

APR and APY are rates that are used to show how much something costs and how much it earns.

What Does APR Have to Do with Crypto?

APR in the world of crypto is just a rate of interest that doesn’t get added up. That is, the return is as stated and can be multiplied by the number of investment times. It gives people who use cryptocurrencies a number that makes it easy to compare different staking sites.