What is the difference between APY and APR?
You may have heard of APY (Annual Percentage Yield) and APR (Annual Percentage Rate), two of the most widely-recognized terms in crypto.
Both APY and APR are used to calculate interest on investment; however, having deep-understandings on how they work and differ from each other would significantly affect how much you will earn with your crypto assets.
Here is a cheat sheet about APY/APR and their main differences:
All these texts would be worthless without a good example. Let's say Clark has a good $1,000 initial investment. An investment product offered him 6% interest every 6-month.
- Without compound impacts, the product's APR = 12% with a simple formula: 6% x 2 halves of the year = 12%. Clark will receive a nice $1,000 x 12% = $120 return for his investment with APR = 12%
- With compound impacts, it gets trickier. For the first half of the year, Clark receives $1,000 x 6% = $60, which later gets reinvested, making the principal bigger at $1,060. At the end of the year, Clark receives $1,060 x 6% = $63.6. Totally, Clark’s annual return is $60 + $63.6 = $123.6. This amount constitutes an APY = 12.36% to the principal $1,000. An easier way to calculate APY is using the formula: APY = (1 + R/N)^N - 1 Whereas R is the annual rate of return, N is the number of compounding periods.
It can be clearly seen that APY is higher in comparison to APR due to compounding impacts.
It is noticeable that all Stake & Farm pools on Baryon use APR as the main interest metrics.
Well, from our point of view, the simpler, the better. A display of extremely high APY can be a double-edged sword, giving a false assumption of the pool.
Simple rule: The more users stake their tokens in Farms, the lower the incentives will be, thus APR & APY will be lowered. The same principle applied to the other way around.
As the deposited amount changes from time to time, the APR will change accordingly.