APR vs APY Difference

What’s the difference between APR and APY?

APR (Annual Percentage Rate)

APR (Annual Percentage Rate) is the yearly interest minus fees. APR does not include any compounding effect from your initial investment. For example, if you put $1,000 in a non-compounding USDT pool with 10% APR, by the end of the year, you would earn an additional $100, which is $1,100 in total.

APY (Annual Percentage Yield)

APY is the annual percentage yield from your investment. In the DeFi pool, you may often see both indicators (APR and APY), but their numbers are hardly the same. The higher the APY against APR, the higher the frequency of compounding. For example, if you put $1,000 into a daily auto-compounding USDT pool with 10% APR, you would end up with 10.52% APY, resulting in an additional $105.20. ($1,105.20).

The higher the APR and compounding frequency, the higher the APY.

Another example:

MATE (Single Asset Pool) with 225% APR, compounded daily, has a total of 842.24% in APY. (APR and APY changes throughout time, this is just a simple example for APY & APR)

If you staked 10,000 MATE without compounding, you would get 22,500 MATE in a year.

But if you compound it every 24 hours, you would get 84,224 MATE.

This website has a great calculator for calculating the difference between APY and APR.