What Is The Difference Between APY and APR?

Meaning of Annual Percentage Profit In Crypto?

In the crypto industry, many people have failed to understand the difference between APR (Annual Percentage Rate) and APY (Annual Profit Yield). In this article, I am going to explain it to you. You can refer to this article as APR and APY for dummies:)

Designed by me

That is, by the way, let us dive in right away.

APR is an interest earned when your crypto is made available to borrowers.

For instance, in decentralized financing, if borrowers are paying 8% annual interest on Bitcoin they borrowed, the lender will receive 8% APR (Annual Percentage Rate) because there is nothing like platform fees.

APR on centralized platforms like exchanges Binance, Kucoin, FTX, and so on, maybe slightly lower because the middleman (exchange) will remove a commission for linking the borrower to the lender.

Now, let us assume that you own crypto, and decide to lend it out to others for a percentage rate of 20%. At the end of 365 days, the amount of your coin will increase by 20%.

Meaning of Annual Percentage Profit In Crypto?

At this point, I expect that you should have understood the meaning of APR. Otherwise, re-read the above definition of APR.

Nice, you are now a graduate of the Annual Percentage Rate course… lols.

Annual Percentage Yield means that your coin is generating interest and the interests are also generating more interest. APY has a compounding interest function, the ROI is way bigger than what APR gives.

Both APR and APY may be paid with the coin that you staked or another type of coin. For instance, you may stake Bitcoin on Pancakeswap and earn your interest via CAKE token.

What Is The Difference Between APY and APY?

APR is a simple interest earned on your savings while APY is a compound interest earned on your crypto savings.

Note: Savings and staking are interchangeably used in the crypto industry.

In some cases, you can stake your coin for a period of 7 days, 30 days, or 3 months. However, there are different crypto saving options;

  • Flexible Savings: It works like a traditional bank savings account, you can withdraw your coin at any time without prior notice. But the APR is usually low.
  • Fixed Savings: It is the opposite of flexible savings, the reward is higher but you cannot withdraw your coin once it is staked for a specific time. You have to wait till the countdown is over. This is a great option if you have the intention to keep your coin for the long term.

When you want to stake your coins, you have to choose between DeFi or CeFi platforms.

CeFi means a centralized financing platform

DeFi means a decentralized financing platform.

Both have merits and demerits, I will talk about them in a subsequent article.

When you want to join any crypto savings/staking program, make sure that you have done your own research, be aware of the staking fees, cost of staking when the staking period is not over, and the potential of rug pull, tokenomics, and project credibility.

See you soon!

What do you think about crypto savings? Let me know in the comment box.

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About the Author

Ojeniyi Ayobami Abimbola has been trading cryptocurrency since 2015, and he is a blockchain content creator and a crypto coach at Cryptoniche. You can connect with him on: https://t.me/cryptoniche_hangout

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Ojeniyi Ayobami Abimbola

Ojeniyi Ayobami Abimbola

Blockchain content creator, full-time cryptocurrency trader and author of ‘Remote Crypto Job Is Waiting for You.’ Social Media Director at Althash University.