Thread by @dopeboyshanee

Many dont know the difference between APR and APY, especially when it comes to defi. A simple 🧵 👇👇

APR (annual percentage return) is the annual rate of return *not* taking into account effects of the compound of interest

APY(annual percentage yield) is the annual rate of return, taking into account the effects of the compound of interest.

APY>APR

It's better to calculate your returns on investment using APY, while APR is more common in lending

Eg, a yield farming program offers APR of 100%/yr. You deposit $1000. A year later you'll receive $2000, where $1000 is the initial capital and $1000 is APR

APY is when you add the rewards from farming to your principle each day/month, this compounding it.

APY = ((1+r/n)^n)- 1, r = apr and n=time period

Let's say its compounded daily for a year, then for the previous example:

APY = ((1+100%/365)^365)-1 = 1.714 = 171.4%

So when a protocol says APY=x%, it means the rate of return would be x% only if compounded, unless explicitly stated.

Stay safe and farm away!