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APR vs APY: Why your crypto yield is not what you think?
If you are in the world of finance or crypto, you have surely seen these terms: APR and APY. They seem the same, right? But here comes the important part: the difference can cost you real money.
The APR: Simple, but Deceptive
APR (Annual Percentage Rate) is the basic interest you calculate only on your initial capital. It's as if your bank told you: “You invest 1000 USDT at 10% APR = you earn 100 USDT per year.” Period, nothing more.
Where do you see it?
The problem: completely ignores compound interest. That is, it does not account for the fact that your earnings can also generate profits.
The APY: The reality, what you really earn
APY (Annual Percentage Yield) does include the magic of compound interest. Here, your earnings not only add to the capital, but that earning also starts generating more earnings.
Real example:
Result: The APY is always greater than the APR. Sometimes the difference is small, but with high rates and long terms, it can be quite significant.
Where do you find it?
The compound effect in numbers
1000 USDT, base rate 10% APR:
It seems little, doesn't it? But with 10,000 USDT and rates of 20% APY in staking, the difference between daily, monthly, or quarterly capitalization is significant.
The lesson: Read the APY, not the APR
When you see yield offers in crypto (staking, lending, yield farming), always pay attention to the APY, not the APR. The APY reflects what you will actually earn considering how your interest is compounded.
Many platforms boast high APR numbers, but when you look at the real APY (especially if it is compounded less frequently), the yield drops quite a bit.
TL;DR: APR = the simple but incomplete. APY = the truth of the yield you are going to receive. In crypto, always choose opportunities that publish their real APY.