APY vs APR
The practical difference between simple annual rate (APR) and compound annual rate (APY). Over long horizons a small gap in the headline becomes a large gap in the wallet balance.
Aliases: apr vs apy, apr apy difference
APY vs APR is a comparison every DeFi user needs to make explicit. The same protocol can advertise both “5% APR” and “5.12% APY” honestly — they answer different questions.
What each one says
- APR (Annual Percentage Rate) — the simple rate. 10% APR over a year without reinvestment = +10% to your balance.
- APY (Annual Percentage Yield) — the rate with compounding. 10% APY = a real +10% over the year, assuming continuous reinvestment.
At fast compounding (daily/hourly/per-block), 5% APR adds 0.127 pp on top to reach APY. At 50% APR the gap is 14.87 pp (APY ≈ 64.87%). At big rates, the metric you pick reshapes the picture.
Which metric is honest where
| Scenario | Use | Why |
|---|---|---|
| Lending deposit with auto-compound | APY | Yield really does compound on-chain |
| Lending borrow | APR | The borrower is not reinvesting debt |
| Liquid staking (tsTON, etc.) | APY | LST/TON rate drifts continuously |
| Farm emissions in side token | APR | Reward asset is not auto-reinvested |
| CEX savings | Depends | Read the fine print |
Practical takeaways
- If a product quotes a big APY, ask: how often does it compound? Marketing may assume per-block; reality may be a manual claim.
- If a product quotes APR, estimate APY yourself: for most protocols at rates up to 30%, APY ≈ APR + (APR × 0.03–0.05). At extreme emission APRs the gap widens, but those APRs are themselves unstable.
- When comparing offers, normalise everything to one metric.
Remember: APR is “what gets credited”; APY is “what you end up with if it all stays in”.