What are APR and APY? Profit Determination Based on APR and APY
In the world of decentralized finance (DeFi), two common indicators—APR and APY—frequently appear when users participate in staking, farming, or crypto savings. However, not everyone fully understands what APR is, what APY is, and how the difference between them impacts actual returns.
If you’re exploring the crypto market, looking for airdrop opportunities, or trying to optimize your staking yield on Gate, this article will help you clearly understand how to calculate profit based on APR and APY and avoid common misconceptions when investing in blockchain-based financial products.
What is APR?
APR (Annual Percentage Rate) is the annual interest rate that does not include compounding. It shows the yield for staking or lending activities and tells users how much return they can expect over a year without reinvesting the interest earned.
Example: If you stake 1,000 USDT at a 10% APR, you will receive 1,100 USDT after one year.
Key features of APR:
- Straightforward and transparent
- No compound interest included
- Commonly used in standard lending or non-compounding staking
What is APY?
APY (Annual Percentage Yield) is the actual annual return that includes compound interest. This means your earnings are reinvested periodically (daily, weekly, etc.), which leads to a higher total return than APR if compounded frequently.
Example: With the same 1,000 USDT and a 10% rate calculated as APY with daily compounding, you could end up with ~1,105 USDT after one year—more than APR.
Key features of APY:
- Includes compound interest
- Maximizes returns through auto-reinvestment
- Common in auto-compound pools and farming
Comparison of APR vs. APY
To better understand the difference between APR and APY, see the table below. The more frequent the compounding, the greater the difference between the two:
| Criteria | APR | APY |
|---|---|---|
| Interest model | No compound interest | Includes compound interest |
| Profit calculation | Based on initial principal only | Includes reinvested earnings |
| Actual return | Lower | Higher with frequent compounding |
| Typical use cases | Basic staking, lending | Auto-staking, yield farming |
How APR and APY Are Applied in DeFi & Gate
On platforms like Gate, you’ll typically see APR displayed for standard staking pools, while APY is used for flexible savings or auto-compounding farming products.
Example use cases:
- APR: Staking tokens on Gate Earn shows a fixed return without automatic reinvestment.
- APY: ETH 2.0 staking or farming pools with auto-compound mechanisms reflect APY to show the true return over time.
Understanding what APR is and what APY is helps users choose the right product based on their risk profile and return expectations.
Things to Watch When Choosing APR/APY Products
Don’t just focus on the highest percentage—also consider the following:
- Interest payout frequency: Daily, weekly, or monthly?
- Is reinvestment automatic or manual?
- Platform fees or lock-up periods
- Price volatility of the base token, which can impact actual yield
Conclusion
Understanding the difference between APR and APY is essential to optimize returns in DeFi, and to make smarter decisions when joining staking, farming, or lending programs. In the crypto world—where volatility is high and opportunities come fast—knowing how APR and APY calculate profit gives you an edge.
At Gate, you can explore a wide range of financial products, from fixed-APR staking to auto-compound farming based on APY—perfect for every level of investor. Don’t forget to watch for airdrop campaigns or staking bonus events to boost your returns beyond just interest rates.
