APR vs APY in Crypto: Which One Actually Matters for Your Stack?

If you’re diving into staking, yield farming, or any DeFi protocol, you’ve probably seen both APR and APY thrown around like they’re the same thing. Spoiler: they’re not. And the difference could cost you serious money if you’re not paying attention.

The Basic Breakdown

APR (Annual Percentage Rate) is the simple interest game. It tells you what percentage of your principal you’ll earn (or pay) in a year, no tricks attached. If you stake 1 ETH at 6% APR, you get 0.06 ETH after 12 months. That’s it.

APY (Annual Percentage Yield) is where compound interest enters the chat. It accounts for the fact that your interest earns interest—basically interest on steroids. Same 6% rate, but compounded? You’re looking at roughly 6.18% actual return depending on how often it compounds.

Why This Matters in Crypto

Traditional finance compounds maybe quarterly or monthly. Crypto? Many protocols compound daily or even constantly. This is where APY starts to look a lot sexier than APR.

Let’s say you’re providing liquidity or staking on a DeFi platform:

• APR at 24%: You’d expect 0.24 ETH on 1 ETH after a year
• APY at 24% (daily compounding): You’d actually get closer to 0.27 ETH

That 3% difference might not sound huge, but scale it to $100K and you’re looking at an extra $3K just from how often the interest compounds.

The Math (If You’re Into That)

APR formula: Simple and straightforward

APR = (Interest Rate × Time Period)

APY formula: Accounts for compounding

APY = (1 + r/n)^n - 1

Where r = interest rate and n = compounding periods

Example: A 6% rate compounds to:

• 6.09% APY (semi-annual compounding)
• 6.18% APY (daily compounding)

Fixed vs Variable APR

In crypto lending and staking, you might encounter:

• Fixed APR/APY: Rate stays locked in, predictable returns
• Variable APR/APY: Fluctuates with market conditions, could go up or down

Variable rates are riskier but sometimes offer higher initial yields. Choose based on your risk tolerance and market outlook.

Real-World Example

Invest 10,000 USDC at 5% APR vs APY over 3 years:

• APR only: 10,000 + (500 × 3) = 11,500 USDC
• APY with daily compounding: 11,576.25 USDC

That $76 difference is pure compound interest magic.

Bottom Line

As a borrower: APR is your friend (lower payment rates)

As an investor/staker: APY is your best friend (higher actual returns)

Always check which metric a protocol is advertising. Some platforms are sneaky and advertise APR when they mean APY, or vice versa. Read the fine print. In crypto, those percentage points can add up fast.