APY vs APR: two ways to quote a yield

Why the Same Yield Has Two Numbers

APR—Annual Percentage Rate—is the simple annualized interest rate, ignoring compounding. If a protocol pays 0.1% per day in rewards, the APR is roughly 36.5%. APY—Annual Percentage Yield—assumes those daily rewards are continuously reinvested and compound on themselves. The same 0.1% daily rate works out to about 44% APY.

At low rates the two numbers are nearly identical, which is why traditional savings accounts rarely make a distinction. In DeFi the rates can be high enough that the gap matters. A 50% APR might be 65% APY if compounded daily; a 200% APR can be over 600% APY. Always check which number a protocol is quoting—APY makes the offer look more attractive, so it is the default in marketing displays.

Two practical caveats. First, real APY only materializes if you actually reinvest at the assumed frequency, paying the gas cost each time. On expensive chains the compounding gas can eat the boost. Second, the rate itself usually fluctuates—lending rates respond to utilization, reward emissions decay over time, and pool fees track volume. The quoted figure is a snapshot, not a guarantee. Auto-compounding vaults like Yearn or Beefy automate the reinvestment math so users actually capture the difference.