APR vs APY in Crypto: What the Two Yield Numbers Mean and How to Convert Between Them

APR (annual percentage rate) is the simple interest a position earns over a year, quoted without compounding, so 10% APR on $10,000 pays $1,000 if nothing is reinvested. APY (annual percentage yield) is the effective return over the same year once each reward is added to the principal and starts earning too, so the same 10% rate compounded daily produces about 10.52%. The rate is the same in both cases. The difference is whether the rewards get put back to work, and how often.

What is the difference between APR and APY?

APR is the simple annual rate: the reward paid per period, multiplied by the number of periods in a year, with nothing reinvested.^[1] If a lending market pays 0.0274% a day, that's 10% APR, and on $10,000 you'd collect $1,000 over the year, paid out in small pieces and left sitting wherever it lands.

APY is what the same rate turns into once each payment is added back to the principal and starts earning alongside it.^[2] Day two's reward is calculated on $10,002.74 rather than $10,000, day three's on slightly more, and by the end of the year the pile is $11,052 instead of $11,000. That extra $52 is compounding, and APY is the number that includes it.

So APR describes what a protocol pays. APY describes what you end up with, on the assumption that rewards get reinvested at some stated frequency. The two are the same number only when nothing compounds at all.

Crypto uses both, and it isn't consistent about which. Native staking dashboards tend to quote APR, because validators pay rewards per epoch and whether those rewards restake depends on the chain. DeFi front-ends tend to quote APY, because vaults and lending markets compound automatically and the bigger number looks better on a landing page. The same underlying yield can appear as 10% on one screen and 10.5% on another, and neither is lying. They're answering different questions.

How do you convert APR to APY?

One formula covers it:

APY = (1 + APR / n)^n - 1

where n is the number of compounding periods in a year. Divide the annual rate into n slices, grow the principal by one slice n times, and subtract the starting balance.

Take 10% APR and run it at three common frequencies.

• Monthly, n = 12: (1 + 0.10 / 12)^12 - 1 = 0.1047, so 10.47% APY
• Weekly, n = 52: (1 + 0.10 / 52)^52 - 1 = 0.1051, so 10.51% APY
• Daily, n = 365: (1 + 0.10 / 365)^365 - 1 = 0.1052, so 10.52% APY

Two things stand out. Compounding always helps, and the help shrinks fast. Going from yearly to monthly adds 0.47 points. Going from monthly to weekly adds 0.04. Going from weekly to daily adds 0.01. Compounding every block instead of every day adds almost nothing on top of that, because the ceiling for 10% APR compounded continuously is also 10.52%. Protocols that advertise hourly compounding are describing an engineering choice, not a meaningfully different return.

The formula runs in reverse when a protocol only shows APY and you want the underlying rate:

APR = n × ((1 + APY)^(1 / n) - 1)

A vault quoting 12% APY with monthly compounding is paying about 11.39% APR. The staking calculator does both conversions at any frequency and shows the balance year by year, which is easier than punching exponents into a phone.

APR to APY at common rates and frequencies

Read down the daily column. At 2% APR, compounding is a rounding error. At 10% it's half a point. At 50% it's nearly 15 points, and at 100% APR the daily-compounded APY is over 171%, close to double the headline rate. The gap isn't linear. It grows faster than the rate does, which is why the eye-watering APYs on new DeFi farms are mostly a compounding artifact stacked on a high APR that itself won't last. A four-digit APY doesn't mean anyone earned four digits. It means someone took a short burst of emissions, annualized it, and then compounded the annualized figure.

Where crypto quotes APR and where it quotes APY

Native staking. On proof of stake chains the network pays validators per epoch, and the headline number is usually an APR because the chain doesn't promise to reinvest anything. Some chains add rewards to the staked balance automatically. On others the rewards accumulate in a separate balance and only compound if you restake them by hand. The mechanics of lock-ups, unbonding periods and reward claiming are covered in staking mechanics, and they decide whether the APY figure is real or theoretical for you.

Delegated staking. On delegated proof of stake networks you delegate to a validator and collect a share of their rewards, minus their commission. Most wallets show the post-commission APR. Compounding is usually a manual claim-and-redelegate, so the APY you'll actually see depends on how often you bother, and on whether the transaction fee makes small claims pointless.

Liquid staking tokens. A liquid staking token either grows in balance or grows in redemption value as rewards arrive, so holding it is compounding by construction. These tend to quote APY, and for once the label matches the mechanism.

Lending markets. Interest accrues every block and is added to the supplied balance, which is effectively continuous compounding. Lending protocols quote APY, and it's a fair description of what a passive depositor earns, as long as the rate holds. Lending rates float with utilization, so a quoted APY is a snapshot, not a contract.

Liquidity pools. Trading fees flow into the pool and increase the value of each LP share, so fees compound automatically, but the quoted rate is normally a fee APR extrapolated from the last day or week of volume. The fee income also sits alongside the price divergence between the two assets, which can more than cancel it out. The AMMs and liquidity pools guide explains where the fee comes from, and the impermanent loss calculator shows how much fee APR a given price move eats.

Stablecoin yields. Yields on stablecoins are the cleanest case because there's no token price to muddy the result: a 5% APY on a dollar-pegged asset is roughly 5% in dollars. They're also where the APR-versus-APY gap is smallest, since the rates are low.

A five-year example

Put $10,000 into a position paying 10% and leave it alone.

With no compounding, the position pays $1,000 a year. After five years you hold the original $10,000 plus $5,000 in rewards sitting on the side: $15,000.

With daily compounding at the same 10% APR, the balance grows to $11,052 after year one, $12,214 after year two, $13,498 after year three, $14,917 after year four and $16,486 after year five. The extra $1,486 came entirely from rewards earning rewards. Nothing about the rate changed.

That's the honest case for caring about APY. Over one year the difference between 10% and 10.52% is $52. Over five years, because each year's gap compounds on the last, it's nearly $1,500 on a $10,000 position. The calculator linked from this guide draws that curve for any rate, frequency and horizon.

APR and APY side by side

Which number should you use?

Comparing two protocols. Use APR. It strips out the compounding assumption and compares what each one actually pays. Two vaults quoting 12% APY with different compounding schedules aren't paying the same rate.

Estimating what you'll hold in a year. Use APY, but only at the frequency you'll really compound at. If the protocol reinvests for you, take its number. If you have to claim and restake by hand, and you'll do that monthly, compute the monthly APY yourself rather than trusting the daily figure on the dashboard.

Small positions with manual claiming. APR is closer to the truth. When each claim costs a transaction fee, compounding a $500 stake weekly burns more in gas than it earns in extra yield, so the position behaves like simple interest whether you like it or not.

Anything advertising a very high APY. Back out the APR first, then ask where it comes from. Trading fees and staking rewards are one thing. Token emissions that dilute the same token you're being paid in are another. The APY formula can't tell the difference, and it will happily compound a reward token that's losing 5% a week.

Dollar terms versus token terms. Both APR and APY are quoted in the units the reward is paid in. A 20% APY paid in a token that halves is a 40% loss in dollars. The compounding math is right. The denominator moved.

Traps in the fine print

A quoted APY assumes the compounding actually happens, and often it doesn't unless you do it. A 7-day APY is seven days of returns annualized, which turns a lucky week into a wildly optimistic year. Reward tokens with no floor under their price can make the APY true and the dollar return negative. And every yield in this guide floats: staking rates move with the amount staked, lending rates move with utilization, pool fees move with volume. Treat any APR or APY as a description of the recent past, not a promise about the year ahead.