What is APY (Annual Percentage Yield)?
The yearly interest rate earned on an investment including compound interest.
APY (Annual Percentage Yield) Explained
APY, or Annual Percentage Yield, represents the real rate of return earned on an investment over one year, taking into account the effect of compounding interest. In DeFi, yields are often auto-compounded, meaning your earnings are automatically reinvested to generate additional returns. This makes APY a more accurate measure of actual returns compared to APR.
Key Characteristics
- Includes the effect of compounding
- Always higher than APR for the same rate (when compounded)
- More accurate representation of actual returns
- Depends on compounding frequency
Real-World Example
With 20% APR compounded daily, your actual APY would be approximately 22.13%. On 1000 FLPS tokens, you would earn 221.3 FLPS instead of 200 FLPS.
Related Terms
Frequently Asked Questions
What does APY (Annual Percentage Yield) mean?
The yearly interest rate earned on an investment including compound interest.
How does APY (Annual Percentage Yield) work in DeFi?
APY, or Annual Percentage Yield, represents the real rate of return earned on an investment over one year, taking into account the effect of compounding interest. In DeFi, yields are often auto-compounded, meaning your earnings are automatically reinvested to generate additional returns. This makes APY a more accurate measure of actual returns compared to APR.
Can you give an example of APY (Annual Percentage Yield)?
With 20% APR compounded daily, your actual APY would be approximately 22.13%. On 1000 FLPS tokens, you would earn 221.3 FLPS instead of 200 FLPS.
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