Just noticed that many people are still confused about what APR is, so I want to share a clear understanding of this because it’s really important if you’re involved in crypto.

Simply put, what is APR – it’s the regular interest calculated only on the principal amount. There’s no compounding of interest. For example, if you invest 100 baht at an APR of 5%, you’ll earn 5 baht per year. Next year, it’s another 5 baht, no increase.

But that’s where APY differs. It accounts for compound interest. The interest is added to the principal, and the next year’s interest is calculated on the larger amount. Because of this, APY offers a better return.

In the crypto world, what is APR? It’s the total interest you earn from staking or lending money, but it doesn’t include compounding. If you stake 1 ETH at an APR of 24% for a year, you’ll get 0.24 ETH. That’s it, no matter how much the interest accumulates.

APY works the same way but includes compounding. If daily compounding at 6% APR, it might become 6.18% APY in one year. The difference seems small, but over long-term investments, the returns can vary significantly.

There’s a formula to calculate this, but honestly, what is APR? It’s simply P x T (rate x time). APY uses a more complex formula because it considers compounding.

In practice, if you’re an investor, look at APY because it shows the actual return. If you’re borrowing, look at the lowest APR because that’s your cost.

Real example – investing 10,000 baht at 5% APR per year. Calculated simply with APR over 3 years, you get 1,500 baht. But with compound APY over 3 years, you get 1,576 baht. The difference grows bigger the longer the period.

That’s about it—what is APR and how it differs from APY. The most important thing is to understand clearly, as it helps you make better investment decisions. If you’re playing DeFi or staking on Gate, you should look at the APY rate to calculate your actual returns.