APR and APY are two terms that confuse newbies in DeFi but what's quite amazing is that they're not terms that are exclusive to DeFi, they're also used in traditional finance. I'll be defining them and talking about their difference
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APY; means "Annual percentage yield", if you provide liquidity to a liquidity pool on an AMM(automated market maker), you earn a compounding interest and your earning is dependent on how often the yield is disbursed , it could be every 8 hours, meaning your APY will be
higher than if it was compounded weekly. APY can fluctuate based on the token price and the total amount of deposit. It is more profitable than APR
You can calculate it yourself using the formula below where;
r = nominal interest rate
n = number of compounding periods per year
You can calculate it yourself using the formula below where;
r = nominal interest rate
n = number of compounding periods per year
2. APR; means "Annual percentage rate", unlike APY, this doesn't consider the compounding interest, in fact it is independent of it
Basically it is added to the compounding interest to get the APY (another way to calculate for APY)
Below is how to calculate it
Basically it is added to the compounding interest to get the APY (another way to calculate for APY)
Below is how to calculate it
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