What is APY?

APY (Annual Percentage Yield) represents the total return you’ll earn on an investment over one year, including the effects of compounding. In crypto, APY is commonly used to describe returns from staking, lending, and liquidity provision.

APY vs APR

APY (Annual Percentage Yield)

  • Includes compound interest
  • Higher than APR for same rate
  • What you actually earn

APR (Annual Percentage Rate)

  • Simple interest only
  • Doesn’t account for compounding
  • Base rate before compounding

Example

  • APR: 10%
  • Compounding: Daily
  • APY: ~10.52% (slightly higher due to compounding)

Where APY Applies in Crypto

Staking

  • Lock tokens to secure network
  • Earn rewards as new tokens
  • Typical APY: 3-15%

DeFi Lending

  • Supply assets to lending protocols
  • Earn interest from borrowers
  • Typical APY: 1-10%

Liquidity Provision

  • Provide liquidity to DEXs
  • Earn trading fees
  • Typical APY: 5-50%+

Understanding APY Numbers

Realistic APYs

  • Staking major coins: 3-8%
  • Stablecoin lending: 2-5%
  • Established DeFi: 5-20%

Warning Signs (Too Good to Be True)

  • 100%+ APY: High risk, likely unsustainable
  • 1000%+ APY: Almost certainly a scam or ponzi
  • Decreasing APY: Common as more users join

APY Risks

  • Token price depreciation
  • Smart contract vulnerabilities
  • Impermanent loss (LP)
  • Protocol changes

Earn yield safely on exchanges like Coinbase and Kraken with lower but more stable APYs.