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Analyzing Market
Glossary

Annual Percentage Yield (APY)

Annual percentage yield (APY) is the real rate of return earned on a deposit over a year, including the effect of compounding — that is, earning returns on your previously earned returns.

How it works

Unlike a simple interest rate (sometimes shown as APR), APY assumes rewards are reinvested as they accrue, so it captures the snowball effect of compounding. The more frequently rewards compound, the higher the APY for the same headline rate. In crypto, APY is quoted on staking, lending and liquidity-provision products.

Why it matters

APY lets you compare different yield opportunities on a like-for-like basis. In DeFi the figure can be very high but also unstable, because it often depends on volatile reward-token prices and changing demand, so a quoted APY is a snapshot, not a guarantee.

Example

A deposit advertised at 10% APY would grow to about 110 units after a year if the rate held and rewards compounded as assumed.

Annual Percentage Yield (APY): Frequently Asked Questions

What is the difference between APY and APR?
APR is a simple interest rate that ignores compounding, while APY assumes rewards are reinvested as they accrue and so captures the snowball effect of earning returns on returns. For the same headline rate, APY is higher the more frequently rewards compound. APY therefore reflects the real annual return more fully than APR.
Is a quoted APY guaranteed?
No. A quoted APY is a snapshot, not a promise. In DeFi especially, the figure often depends on volatile reward-token prices and changing demand, so it can fall sharply. A very high APY can be a sign of elevated risk or unsustainable rewards. Treat advertised yields as current estimates that may change.
Where does crypto APY come from?
In crypto, APY is typically quoted on staking, lending, and liquidity-provision products. The return can come from network staking rewards, interest paid by borrowers, trading fees, or incentive tokens distributed by a protocol. Because some of these sources depend on volatile token prices and demand, the resulting APY can be unstable.
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