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.