What is APR (Annual Percentage Rate)?
The yearly interest rate you earn or pay on a crypto investment, not including compounding effects.
What is APR in Crypto?
APR stands for Annual Percentage Rate. It tells you how much interest you will earn (or pay) on a crypto investment over one year, expressed as a percentage. Unlike APY, APR does not account for compounding - meaning it assumes you do not reinvest your earnings during the year.
A Simple Example
Suppose you deposit Rs 1,00,000 worth of USDT into a DeFi protocol offering 12% APR. At the end of the year, you would earn approximately Rs 12,000 in interest (ignoring compounding). That is your return based on APR.
APR vs Fixed Deposits in India
Indian bank fixed deposits currently offer around 6-7% per annum. Many DeFi protocols offer APRs of 5% to 50% or more. However, the risks are very different. A bank FD is insured by DICGC up to Rs 5 lakh and regulated by RBI. DeFi APRs can change daily, and your principal can be lost if the protocol is hacked.
Where You See APR in Crypto
- DeFi lending platforms like Aave or Compound show APR for depositors and borrowers.
- Centralized exchanges like CoinDCX or Binance show APR on their staking or savings products.
- Liquidity pools often advertise APR to attract liquidity providers.
Key Takeaway
When comparing returns, always check whether a platform is quoting APR or APY. APY will always look higher than APR for the same investment because it includes the effect of compounding. The difference can be significant at high rates.
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