What is APY (Annual Percentage Yield)?

What is APY in Crypto?

APY stands for Annual Percentage Yield. It is the actual return you earn on a crypto investment over a year, including the effect of compounding. Compounding means your earnings are automatically reinvested, so you earn interest on your interest - similar to how a recurring deposit (RD) works at an Indian bank.

APY vs APR: What is the Difference?

APR is the simple annual rate, while APY includes compounding. The more frequently interest compounds (daily, weekly, monthly), the higher the APY compared to the APR.

• If a platform offers 12% APR compounded monthly, the APY is approximately 12.68%.
• If the same 12% is compounded daily, the APY rises to around 12.75%.

For small differences this might seem minor, but at high DeFi rates (e.g., 100% APR), the APY can be nearly double the APR.

Real Example in INR

You deposit Rs 50,000 into a DeFi vault that compounds daily and offers 20% APY. At the end of the year, your balance would be approximately Rs 60,000 - a gain of Rs 10,000. If it were 20% APR with no compounding, you would earn the same Rs 10,000 only if you manually reinvested rewards every day.

Things to Watch Out For

• Very high APYs (500%, 1000%) are usually paid in newly minted tokens that may rapidly lose value.
• APY can change dramatically within days or even hours in DeFi based on market conditions.
• Always check if the APY is paid in the same token you deposited, or in a separate reward token with its own price risk.