APY or APR: which metric should a crypto investor choose — a practical analysis

When you’re looking for where to allocate your crypto assets for income, you will encounter two confusing abbreviations: APR and APY. Most investors confuse these metrics and often choose investments incorrectly. Let’s understand what they mean and why it matters for your wallet.

Why confusion between APR and APY can cost you money

Here’s the essence: if you want to earn through staking, lending, or farming, you need to understand how exactly the platform calculates your returns. Two indicators — APR and APY — look similar but work completely differently. This can lead to missing out on actual profit or, conversely, overestimating it.

Knowing the difference, you can honestly compare offers from different platforms and choose those that truly give more.

APY: real yield accounting for compound interest

APY (Annual Percentage Yield) — this metric reflects the actual income over a year when interest is compounded on interest. This is the so-called “magical” effect of compound interest.

The formula looks like this:

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

Where:

• r — annual rate (in decimal form)
• n — number of times interest is compounded per year
• t — time in years

( Specific example

Invested $1000 at 8% with monthly interest accrual. Calculations:

APY = )(1 + 0.08/12)^12*1### - 1 ≈ 0.0830 or 8.30%

That is, instead of the promised 8%, you will get 8.30%. The difference seems small, but with large sums, it is noticeable.

( When interest is accrued differently

Let’s compare two platforms, both offering 6% per year:

• Platform 1: interest monthly → APY = 6.17%
• Platform 2: interest quarterly → APY = 6.14%

They look the same, but Platform 1 yields more due to more frequent compounding.

) Advantages of APY

• Honest picture: see the real income after all accruals
• Fair comparison: can accurately compare different platforms with different compounding frequencies
• Realistic expectations: no disappointment when actual income exceeds expectations

( Disadvantages of APY

• Harder to calculate: requires understanding math
• Can be confusing: some confuse it with simple interest rate
• Less intuitive: not as immediately clear as simple interest

APR: basic rate without tricks

APR )Annual Percentage Rate### — this is simply the annual interest rate. No complex interest, no reinvestment. If you are given 5% APR, you will get exactly 5% per year.

Simple calculation:

APR = ###interest earned over the year / principal### × 100

( Practical examples

On lending platforms: Lent 1 BTC at 5% APR. After a year, you get 0.05 BTC. No more, no less.

On staking: Staked 100 tokens at 10% APR. Annual income — exactly 10 tokens.

) Advantages of APR

• Simple: easy to calculate, easy to understand
• Standardized: the same rate across platforms with the same scheme
• Transparent: you know exactly how much you will get in absolute numbers

( Disadvantages of APR

• Does not show actual income: if the platform reinvests interest, you will earn more
• Poor for comparison: two platforms with the same APR but different compounding frequencies will give different final results
• Can be misleading: investors often think this is their real earnings

Main differences at a glance

What is APR in staking and when does it matter

When you stake, the platform may indicate returns as either APR or APY.

If APR is specified — you will get exactly this rate without considering that rewards can be reinvested.

If APY is specified — this is already a calculation considering that rewards are accrued multiple times a year.

Example: Ethereum staking is often indicated with APY because rewards are received frequently and can be immediately reinvested into new harvests.

Which metric to choose for different situations

Simple peer-to-peer loans: Use APR. You lend money, receive a fixed percentage once at the end of the period. No reinvestment.

Lending platforms without reinvestment: Also APR. The platform accrues interest monthly, you withdraw it. No compound interest.

DeFi staking platforms: Better to look at APY. Rewards are accrued often, and if not withdrawn, they immediately participate in the next round.

Crypto savings accounts in banks: Definitely APY. Reinvestment is the main mechanism here.

Crypto farming: Look at APY if rewards are frequent ###daily or hourly###. If rewards are paid once quarterly, APR may suffice.

Practical tips for use

Tip 1: always ask what is meant If the site says simply “20% income,” clarify whether it’s APR or APY. The difference is significant.

Tip 2: calculate yourself Don’t trust platform calculators. Take the formula and recalculate on paper (or in Excel).

Tip 3: remember about risk High APY often indicates increased risk. The platform may shut down, smart contract could be compromised. Don’t chase numbers alone.

Tip 4: compare honestly When comparing two platforms, convert both indicators to APY. This is the only honest way.

Final picture

APR shows a simple interest rate — straightforward and understandable. APY shows the actual income when interest is compounded.

If the investment involves frequent reward accruals (daily, monthly), look at APY — it will give an honest picture. If rewards are paid once at the end of the period, APR is quite informative.

The main thing — don’t follow numbers blindly. High returns often come with risks. Choose proven platforms, understand the mechanics of each investment, and only then make a decision.

Frequently Asked Questions

( What does “10% APR in cryptocurrency” mean?

It means you will earn 10% of your invested amount per year. For every $100 — $10 income. No compound interest, no reinvestment. The rate remains simple.

) Which is bigger — APY or APR?

Under equal conditions, APY is always greater (or equal to) APR. Because APY accounts for reinvestment, and APR does not. The difference depends on how often interest is accrued.

Is 5% APY high?

It depends on the context. For traditional finance — yes, very high. For cryptocurrencies — average. You can get from 2-3% up to 10-15% and higher ###with risk(.

) How to find out the real income?

Always ask for APY, not APR. APY is what you will actually receive in hand after a year ###if you do not withdraw intermediate interest(.

) Is high yield bad?

Not always, but often. High APR or APY often signals risks: unstable platform, new protocol, lack of code audit. First check reputation, then calculate interest.