APR vs APY in Crypto: Which One Actually Matters?

Question

If you've been scrolling through DeFi platforms, you've probably seen both **APR** and **APY** thrown around like confetti. They sound similar, but they're actually pretty different—and that difference can seriously impact your earnings.## The Simple Version**APR (Annual Percentage Rate)** = boring, straightforward interest on your principal. You invest 100 USDC at 5% APR? You get 5 USDC. Done.**APY (Annual Percentage Yield)** = interest on top of interest. It compounds. You earn interest on your interest. The magic happens when your earnings get reinvested automatically.## Let's Make This RealSay you stake 10,000 USDC at a 5% rate for one year.**With APR alone:** 10,000 + 500 = 10,500 USDC**With APY (compounded daily):** 10,512.67 USDC (approximately)That extra 12.67 USDC? That's the power of compounding. Doesn't sound like much, but scale it up or extend the timeline, and it gets wild.## The Key Differences| Factor | APR | APY ||--------|-----|-----|| Considers compounding? | ❌ No | ✅ Yes || Better for investors? | No | Yes || Better for borrowers? | Yes | No || Your money grows how fast? | Linear | Exponential |## Why This Matters in DeFiWhen you're staking on Lido, farming on Aave, or providing liquidity on Uniswap, platforms usually advertise **APY** because it looks better (and rightfully so—it's the real return). But some protocols still quote APR to make rates seem higher than they actually are.**The rule:** Always check what metric they're using. If they won't tell you, that's a red flag.## The Crypto TwistIn traditional finance, compounding happens quarterly or monthly. In crypto? Daily. Sometimes even more frequently. That means your rewards compound faster, and the gap between APR and APY gets bigger.Example: 6% APR vs 6% APY- Daily compounding → APY becomes ~6.18%- The difference keeps growing the longer you hold## Bottom LineIf you're **earning** (staking, providing liquidity, lending), chase **APY**. If you're **borrowing** (taking a loan), hope the lender quotes **APR** (lower number = better for you).The compounding effect in crypto is real, and it's one of the few legitimate ways to make your idle tokens actually work for you. But don't let fancy percentages fool you—always read the fine print.

Factor	APR	APY
Considers compounding?	❌ No	✅ Yes
Better for investors?	No	Yes
Better for borrowers?	Yes	No
Your money grows how fast?	Linear	Exponential

APR vs APY in Crypto: Which One Actually Matters?

The Simple Version

Let’s Make This Real

The Key Differences

Why This Matters in DeFi

The Crypto Twist

Bottom Line