I've noticed that many people entering crypto don't really understand the difference between APY and APR.

It's a shame because it can be costly in potential returns.
Let me share with you what I've learned.

Crypto APY is really the number that matters when you want to evaluate your actual gains.
Unlike APR, which only gives you the gross rate, APY takes into account compound interest.
It's literally interest on your interest, and it makes a real difference over the long term.

To give you a concrete idea: if a platform announces 2% APR and 3% APY, this 1% difference comes directly from compounding.
The more you leave your gains reinvested, the more it accumulates.
It's mathematics.

The basic formula is APY = (1 + r/n)^(nt) - 1, but honestly, you don't need to calculate it yourself.
What you need to know is that in crypto, the calculation becomes more complex because of market volatility and specific risks.
Each platform has its own parameters.

Now, where do you encounter crypto APY in practice?
There are three main situations.
First, lending: you lend your crypto and receive interest according to an agreed APY.
Next, yield farming, where you put your crypto into different protocols to generate returns, but beware, risks can be high especially on new platforms.
Finally, staking, where you lock your crypto on a blockchain network and receive rewards, often with an attractive APY on proof-of-stake networks.

The trap is to look only at the APY without considering the overall context.
Yes, a platform can display 50% APY, but if liquidity risk is huge or if it's an unstable new protocol, your money could disappear before seeing those returns.
I've seen it happen.

So, here it is: crypto APY remains an essential tool for comparing opportunities, but it's just part of the puzzle.
Alongside that, you need to evaluate platform stability, smart contract risks, and your own risk tolerance.
APY gives you a good picture, but it's not everything you should look at.