APR vs APY in Crypto: What's the Real Difference?

If you’re into crypto staking or yield farming, you’ve probably seen APR and APY thrown around everywhere. Most people think they’re the same thing—they’re not. And honestly, mixing them up could cost you real money.

APR: The Simple Version

APR stands for Annual Percentage Rate. It’s straightforward—no compounding, just a flat yearly rate.

Think of it this way: if you stake 1 ETH at 24% APR, you get 0.24 ETH in rewards after a year. That’s it. 1 ETH + 0.24 ETH = 1.24 ETH.

The formula is dead simple: APR = P × T (where P is the rate and T is time in years)

In crypto, APR is mostly used for lending protocols and basic staking pools. It’s transparent—no hidden fees, no compounding tricks. Just the raw interest on your principal.

APY: Where Compound Interest Gets Spicy

APY is Annual Percentage Yield. The key difference? Compound interest.

With APY, you earn interest on your interest. Here’s the mind-blowing part: at the same 6% rate, APY beats APR every single time:

• APR 6% = 6% flat
• APY 6% (daily compounding) = 6.18%
• APY 6% (weekly compounding) = 6.18%
• APY 6% (monthly compounding) = 6.17%

The formula looks scarier: APY = (1 + r/n)^n - 1 (where r is the rate and n is compounding periods)

But here’s the real magic: in DeFi, many protocols compound your rewards daily. That means every 24 hours, your interest earns interest. Over months and years, this snowballs into serious gains.

Real Math: How Much Difference Are We Talking?

Let’s use actual numbers:

Scenario: You deposit 10,000 USDC at 5% for 3 years

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

That extra 76.25 USDC sounds small until you’re doing this with 100,000 or 1,000,000. Then we’re talking real money.

APR vs APY in Crypto: Which Should You Care About?

If you’re a borrower → APR is your enemy. You want the lowest APR possible. Lower rate = less you pay back.

If you’re a lender/staker → APY is your best friend. Higher APY = more passive income, even if the base rate looks the same.

The Crypto-Specific Breakdown

In DeFi:

• Staking: Usually advertised with APY (because compound interest sounds better—and it is)
• Lending pools: Might show APR or APY depending on how often they distribute rewards
• Yield farming: Often shows APY, sometimes APR; always check the details

The reason crypto yields are so high compared to traditional finance? Higher risk. DeFi protocols are experimental. But that’s a separate conversation.

The Bottom Line

Don’t let anyone compare APR to APY like they’re equals. They’re not:

When evaluating a staking opportunity, always ask: “Is this APY or APR?” If they won’t tell you, that’s a red flag.

Most reputable protocols (Lido, Aave, Curve) are transparent about this. They’ll clearly mark whether you’re looking at APR or APY. Use that info to compare apples to apples.

The compounding effect might seem small on day one, but over years? It’s the difference between 11,500 and 11,576. Multiply that across thousands of users and you’re looking at serious wealth generation—or loss, if you get the rates backwards.