What Is APR and How Does It Differ from APY?
APR, or annual percentage rate, is the simple yearly rate of return or cost of borrowing, without compounding. Crypto platforms use it for staking rewards and for interest on DeFi loans.
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APR, or annual percentage rate, is the simple yearly rate of return or cost of borrowing, without any compounding. Crypto platforms use it both for staking rewards and for the interest charged on DeFi loans. The extra return earned by reinvesting interest is captured by a different figure, APY.
How is APR calculated?
APR tells you what percentage of your principal you earn, or pay, over a year. Take 1,000 units of principal at 12% APR. If the rate stays the same and nothing is reinvested, you’ll have earned 120 units after a year, or roughly 10 units a month.
In practice, protocols may accrue interest every second, every block or every day. The rate on screen is annual, but it is built by scaling those short periods up to a year.
APR vs APY
The difference comes down to reinvestment. With APR, only the original principal earns returns each period. With APY, earlier earnings are added to the principal and start earning too.
To convert APR into APY, use APY = (1 + APR/n)^n − 1, where n is the number of compounding periods per year. A 12% APR compounded monthly equals about 12.68% APY; compounded daily, about 12.75%. Comparing one platform’s APR directly with another’s APY is therefore misleading.
Why APR matters when borrowing in DeFi
On DeFi lending platforms, borrowing APRs are rarely fixed. They adjust automatically based on how much of a pool is currently lent out: the higher the utilization, the higher the rate. A loan that costs 5% today can become much more expensive quickly when demand jumps.
That means you shouldn’t estimate the cost of a long-running loan from the day-one rate alone. Falling collateral value is a separate risk: if your collateral ratio drops below a set threshold, the position can be liquidated.
How to read staking APR
Many proof-of-stake networks and exchanges quote staking rewards as APR. The rate is usually variable; as the total amount staked on a network grows, the reward rate per staker tends to fall. Because rewards are paid in the coin itself, your return in dollar terms depends on the coin’s price.
When comparing offers, look separately at commission, lock-up and unbonding periods, and which token the rewards are paid in.
For instance, if a network pays 6% APR and your validator charges a 10% commission, you keep roughly 5.4%. Staking through an exchange adds the platform’s own cut. And during a lock-up, you can’t sell your coins if the price falls.
Frequently asked questions
Which is higher, APR or APY? For the same product, APY is always equal to or higher than APR, because it includes compounding.
Does APR include fees? It depends on the platform. Some show a rate net of commission, others don’t, so check the product details.
Is a fixed APR possible in crypto? Some centralized platforms and a few DeFi protocols offer fixed-rate products for a set term, but most on-chain rates are variable.