APR vs APY in Crypto: What’s the Difference?

If you’ve at one point or another come across the terms APR and APY while checking out crypto staking or DeFi platforms, raise your hand.

Alright now, you can keep it down.

It’s not just you, we’ve all been there. These two terms look similar but work quite differently, especially when it comes to how your returns are calculated in crypto. And that difference? It could mean more or less money in your wallet.

Before we go fully into the differences between APR vs APY in crypto, let’s first explain and help you understand what each term means.

Key Takeaways

• APR shows the annual interest rate without compounding, providing a clear view of potential returns on crypto investments.

• APY includes compound interest, giving a more accurate estimate of total earnings over time.

• Platforms like Lido and Binance Earn use APY when rewards are auto-compounded, while Aave uses APR for manual reinvestment.

• APY is better suited for long-term strategies, while APR is more suitable for short-term or fixed-rate crypto investments.

• Real yield also depends on factors like token price, fees, lock-up terms, and protocol reliability.

What Is APR in Crypto?

APR in crypto stands for Annual Percentage Rate, and it refers to the yearly interest you earn or owe on a crypto asset, without accounting for compounding. In simple terms, it’s the flat rate of return (or cost) calculated over a year, typically expressed as a percentage. 

While APR is a familiar term in traditional finance—think credit cards or loans—it is used in crypto in a slightly more tailored manner, specifically for decentralized systems and blockchain-based financial products.

In the crypto space, APR is commonly applied to staking, lending, and liquidity pools. For example, when you stake your tokens on a blockchain network or a DeFi platform, the APR tells you how much you’ll earn annually for locking up your assets. 

Similarly, if you provide assets to a lending protocol or a decentralized exchange (DEX) as liquidity, your expected return is often displayed as an APR. It gives you a quick look at the potential rewards, though it’s important to remember that it doesn’t reflect compounding interest.

Crypto platforms may offer fixed or variable APRs. A fixed APR means the rate stays the same over a specific period, offering predictable returns. This is more common with centralized services or certain staking contracts. 

On the other hand, a variable APR changes based on market demand, token price volatility, or protocol-specific mechanisms. DeFi platforms like Aave or Compound typically offer variable APRs, meaning your return can fluctuate over time depending on the supply and demand for crypto loans or liquidity.

Read Also: Beyond Trading: How to Earn Crypto Rewards and Secure Your Earnings

How to Calculate APR in Crypto

In crypto, APR (Annual Percentage Rate) represents the yearly return you earn or pay on a position, excluding compounding. It’s a helpful metric in DeFi (Decentralized Finance) for understanding potential earnings or costs in staking, lending, and borrowing activities.

The standard formula to calculate APR in crypto is:

APR = ((Interest + Fees / Loan Amount) / Number of Days in Loan Term) × 365 × 100

For example, let’s say you lend out $1,000 worth of USDC on a DeFi lending platform like Aave, and you earn $50 in interest and $5 in protocol fees over 30 days.

Using the formula, this is how your APR will be calculated:

APR = ((50 + 5) / 1000) / 30 × 365 × 100

APR = (55 / 1000) / 30 × 365 × 100

APR = 0.055 / 30 × 365 × 100

APR ≈ 0.00183 × 365 × 100

APR ≈ 66.72%

So, the APR would be approximately 66.72%, meaning if you held this lending position for a full year at the same rate, you’d expect to earn that much, without compounding.

What Is APY in Crypto?

APY in crypto stands for Annual Percentage Yield, and it represents the real rate of return you earn on an investment over a year, factoring in the effects of compound interest. Unlike APR, which shows simple interest, APY gives a more accurate picture of your actual earnings, especially when interest is reinvested regularly.

Compound interest plays a central role in APY. Instead of just earning a fixed amount based on your initial investment, compound interest means you earn returns on both your original amount and the interest that accumulates over time. 

This leads to exponential growth in your crypto assets if left untouched and allowed to reinvest automatically.

Because APY accounts for this compounding, it more accurately reflects the actual annual yield than APR. For instance, earning 10% APR with monthly compounding will result in an APY slightly higher than 10%, showing that your money is working harder over time.

In the crypto ecosystem, APY is commonly seen in auto-compounding DeFi protocols, such as yield farming platforms and staking pools. 

Protocols like Yearn Finance, PancakeSwap, and Lido frequently use APY to display potential returns, as they automatically reinvest your rewards into the same pool or strategy. This helps maximize gains without requiring constant manual effort from the user.

How Is APY Calculated in Crypto?

In cryptocurrency, APY (Annual Percentage Yield) is calculated using a formula that takes into account the frequency of interest compounding. The more frequently your earnings are reinvested, the higher your actual yield will be over time.

The standard formula for APY is:

APY = (1 + r/n)ⁿ – 1

Where:

• r = annual interest rate (as a decimal)

• n = number of compounding periods per year

This formula helps measure how much you’ll truly earn in a year, factoring in compounding frequency.

Examples are:

Daily Compounding

Let’s say a DeFi protocol offers a 10% interest rate (r = 0.10), and compounds daily (n = 365). Using the formula, we have:

• APY = (1 + 0.10 / 365)³⁶⁵ – 1
• APY = (1 + 0.00027397)³⁶⁵ – 1
• APY = 1.1051 – 1 = 0.1051 or 10.51%

So even though the interest rate is 10%, your actual yield after compounding daily becomes 10.51%.

Weekly Compounding

Same 10% rate, but compounding happens weekly (n = 52). So, we have:

• APY = (1 + 0.10 / 52)⁵² – 1
• APY = (1 + 0.001923)⁵² – 1
• APY = 1.1047 – 1 = 0.1047 or 10.47%

Weekly compounding yields slightly less than daily, but still more than a flat 10%.

Continuous Compounding

In some advanced DeFi models, rewards compound continuously, and APY is calculated using the exponential function:

• APY = e^r – 1

Where e is Euler’s number (≈ 2.71828).

For a 10% rate (r = 0.10), we have:

• APY = e^0.10 – 1 ≈ 1.10517 – 1 = 10.517%

This gives the highest possible yield for that interest rate under continuous compounding.

The more frequently interest is compounded, the higher the APY becomes, assuming the same base interest rate. That’s why DeFi protocols with daily or real-time auto-compounding tend to display higher APYs than those with weekly or monthly payouts. 

Even a slight change in frequency can lead to meaningful differences in returns over time, especially when large sums or long durations are involved.

Read Also: Long vs Short Positions Explained (2025 Guide)

APR vs APY: Key Differences in Crypto

Here are the differences between APR and APY:

Compound Interest: APY Includes It, APR Does Not

The most crucial distinction between APR and APY in crypto is compound interest. APR (Annual Percentage Rate) represents the flat yearly return without compounding, while APY (Annual Percentage Yield) reflects the effect of compounding over time. 

This means APY shows the actual yield you’ll earn if your interest is reinvested at regular intervals—daily, weekly, or continuously. If you’re participating in auto-compounding protocols, APY gives a more accurate picture of your real returns, whereas APR is typically used when the yield is paid out but not reinvested.

Comparison of Returns

Let’s say you deposit $1,000 into a DeFi staking protocol offering a 10% APR, with the option to either compound or not:

• With APR (no compounding): You’d earn $100 in one year.

• With APY (daily compounding at 10% rate):

Using the formula APY = (1 + r/n)^n – 1 

APY = (1 + 0.10 / 365)^365 – 1 ≈ 10.51%

Your return would be $105.10.

This 5.1% difference may seem small in one year, but it grows significantly with higher amounts, longer terms, or more frequent compounding, especially relevant in DeFi farming and high-yield staking.

When Platforms Use APR vs. APY

APR is often displayed by platforms offering fixed income products or manual reward claims, such as:

• Centralized crypto exchanges offering savings accounts (e.g., Binance Earn)

• DeFi lending protocols like Compound or Aave

• Staking pools where rewards are not automatically reinvested

APY, on the other hand, is used where auto-compounding happens or users are expected to reinvest:

• Yield farming platforms like Yearn Finance, Beefy Finance

• Auto-staking tokens like OlympusDAO (OHM)

• Liquidity protocols with built-in compounding strategies

Knowing whether a platform uses APR or APY helps you accurately estimate your real returns and choose between platforms more wisely.

APR vs APY in Crypto Staking and Yield Farming

When it comes to staking and yield farming, the difference between APR and APY can significantly affect how much you earn, especially over time.

Here’s how:

Differences in Rewards Over Time

In short-term scenarios, APR and APY may not differ drastically, especially over a few days or weeks. But over months or a whole year, APY often outperforms APR because it captures the effect of reinvesting rewards. 

For example, a 10% APR will always earn you 10% per year, while the same rate with daily compounding would result in about 10.51% APY, and even more if compounding is more frequent.

This slight percentage difference grows significantly when staking larger amounts or for more extended periods. In yield farming, where compounding can happen daily or even hourly, APY becomes a much more realistic metric for estimating your actual earnings.

Read Also: 15 Best Crypto Staking Platforms For Maximum Passive Income

Examples from Top Staking Platforms

• Lido (ETH staking): Displays APY because rewards are automatically compounded. When you stake ETH through Lido, you receive stETH, which reflects your growing stake as rewards accumulate and are reinvested.

• Aave (DeFi lending and borrowing): Shows APR for both supplying and borrowing assets. Since users must manually claim and reinvest rewards, the platform opts for a non-compounding metric.

• Binance Earn: Offers both APR and APY depending on the product. Fixed savings or locked staking may be shown as an APR, while flexible products that auto-compound earnings often display an APY.

Impact on Long-Term vs. Short-Term Staking Decisions

For short-term staking or farming, APR can be a helpful metric, as compounding may not have sufficient time to boost returns significantly. However, for long-term holders, APY offers a clearer picture of a protocol’s true potential, especially when rewards are reinvested frequently.

When to Use APR vs APY in Crypto

Understanding when to rely on APR versus APY in crypto helps you make smarter investment choices, especially across staking, lending, and yield farming protocols.

Use APR when:

• Rewards are not automatically reinvested: If the platform requires you to claim manually and restake rewards, like in Aave, Compound, or some centralized exchanges, APR gives you a straightforward view of the base return without compounding.

• You’re comparing fixed-term products: APR is typically used for locked staking, crypto loans, or fixed savings, where interest doesn’t compound or is distributed at the end of the term.

• You plan to withdraw frequently: If you’ll be exiting the position before the compounding effects build up (e.g., short-term strategies), APR offers a more realistic measure of what to expect.

Use APY when:

Rewards are auto-compounded: If the platform reinvests your earnings automatically (e.g., Lido, Yearn Finance, Binance Earn), APY gives a more accurate picture of your real annual return.

You’re investing long-term: Over time, small compounding gains add up. APY reflects the accurate yield when you’re leaving funds untouched for weeks, months, or more.

You want to compare real growth potential: When evaluating between different staking or farming opportunities, APY lets you directly compare protocols with similar base rates but different compounding strategies.

Tools to Convert APR to APY (and vice versa)

Converting APR to APY (or vice versa) is essential when comparing crypto investment options that use different yield metrics. 

Fortunately, you don’t need to do complex math manually—several reliable tools and calculators can help you convert between these rates based on compounding frequency.

Online Crypto APR/APY Calculators

Many DeFi and staking analytics platforms offer built-in calculators where you can enter:

• The annual interest rate (APR or APY)

• The compounding frequency (daily, weekly, monthly, etc.)

Popular tools include:

• Staking Rewards APR ↔ APY Converter

• Bankrate APR to APY Calculator

• Crypto.com’s Earn Calculator (offers both APR and APY views)

• CoinMarketCap Yield Calculators

These tools provide instant conversions with minimal input, enabling you to compare yields more accurately across protocols.

Manual Formula for Conversion

You can also use the formulas if you want to understand the calculation:

• APR to APY:

APY = (1 + APR/n)^n – 1

• APY to APR:

APR = n × ((1 + APY)^(1/n) – 1)

Where n is the number of compounding periods per year.

DeFi Dashboard Platforms

Platforms like Zapper and DeBank often display both APR and APY for supported assets and pools, automatically factoring in compounding behavior and protocol mechanics. These dashboards are great for real-time portfolio tracking and comparing yield opportunities side by side.

Browser Extensions or Excel Sheets

For frequent DeFi users, custom-built Excel or Google Sheets templates with embedded formulas can automate the conversion for multiple assets. Some crypto investors also use browser extensions or custom scripts for yield comparison and APR-APY tracking.

Other Important Factors Beyond APR and APY

While APR and APY are essential metrics when evaluating crypto staking, lending, or yield farming opportunities, they don’t tell the whole story. 

To make informed decisions and protect your assets, it’s crucial to consider several other key factors that directly affect your returns and risk exposure.

They are:

Platform Risk and Security

No yield is worth it if the platform isn’t secure. Always research the security history, audit status, and insurance coverage of the DeFi or centralized platform you’re using. Smart contract bugs, rug pulls, and hacks can wipe out funds, regardless of how high the APY looks.

Token Volatility

In many staking and farming setups, you earn rewards in the platform’s native token. If that token’s price drops significantly, your real-world returns could end up negative, even if the APY is high. Consider the price stability and utility of the reward token before committing.

Lock-Up Periods and Withdrawal Limits

Some platforms require locking your funds for a set duration. During that time, you can’t unstake or move your assets, even if market conditions change. Others may have withdrawal fees, cooldown periods, or penalties for early exit, all of which can affect your actual profits.

Fees and Gas Costs

Transaction fees, platform commissions, and Ethereum gas fees (especially in DeFi) can eat into your yield, especially for small portfolios. Always factor in entry, exit, and compounding costs before estimating net returns.

Reward Distribution and Compounding Method

How and when rewards are distributed matter. Are rewards paid daily, weekly, or after maturity? Is auto-compounding built in, or do you need to reinvest your funds manually? These details affect how much you’ll truly earn—and whether APY or APR is even relevant.

Inflation and Emission Rates

High APYs are often driven by token emissions rather than organic yield. If the protocol is flooding the market with rewards, token inflation can dilute the value of your earnings over time. Check the project’s tokenomics, emission schedules, and burn mechanisms.

Final Thoughts

Understanding the difference between APR and APY in crypto helps you make more intelligent choices with staking, lending, or yield farming. While APR provides a flat rate, APY illustrates how compounding enhances your returns over time. 

Knowing when to use each, along with factors like platform fees, token stability, and auto-compounding, ensures you’re not just chasing high numbers.

As you explore DeFi and crypto earning tools, focus on clarity, consistency, and actual returns, not just advertised rates. That’s how you grow with purpose and control in crypto finance.

Frequently Asked Questions