APR

What is APR?

APR, short for annual percentage rate, is a way to express an interest rate over a one-year period as a percentage. In crypto, APR usually describes the simple (non-compounded) rate of return you can earn on deposits or the rate you pay to borrow assets, often inside what is defi products like staking, liquidity incentives, and borrowing markets. Because APR is annualised, it helps you compare offers that accrue rewards per block, per day, or per week by translating them into a yearly rate. However, APR is a quote—not a guarantee—because many crypto rates change as utilisation, incentives, and market conditions shift.

How does apr work in crypto

In crypto, APR is commonly displayed as a simple annual rate based on how rewards accrue over time, without assuming you reinvest those rewards. For example, if a lending protocol pays depositors interest that accrues continuously, the interface may estimate an APR by taking the current per-period rate and annualising it. If you deposit 1,000 units of a stablecoin at 10% APR and do nothing else, the simple expectation is about 100 units earned over a year (before fees, slippage, or variable-rate changes). In practice, crypto APRs are often variable: as more users supply liquidity or more borrowers demand funds, the rate can move up or down, changing the realised yield.

Apr vs apy in defi

APR and apy are closely related, but they answer different questions. APR is the simple annual rate, while apy (annual percentage yield) reflects compounding—meaning it assumes you periodically reinvest rewards back into the position. In DeFi, this difference matters because many strategies automatically compound (for example, vaults that harvest and reinvest rewards), while others pay rewards that you must manually reinvest. Two products can advertise the same APR but produce different outcomes depending on compounding frequency, fees, and whether rewards are paid in the same asset or in a separate incentive token. When comparing opportunities, treat APR as the baseline rate and APY as the compounded outcome, then sanity-check both against how the product actually distributes rewards.

How to calculate crypto apr

To calculate crypto APR, start with the return you earn over a known period and annualise it using simple interest. A practical formula is: APR ≈ (rewards earned ÷ principal) × (365 ÷ days held) × 100%. Example: you deposit $2,000 worth of an asset and earn $10 over 7 days. Your period return is 10/2000 = 0.5%. Annualising: 0.5% × (365/7) ≈ 26.07% APR. This is a snapshot based on that week’s conditions; if the rate is variable, your realised APR over a full year may differ. Also account for costs that reduce net returns—such as protocol fees, performance fees in vaults, gas costs for claiming/compounding, and any losses that affect your effective yield.

Why is apr lower than apy

APR is often lower than APY because APY includes the effect of compounding, which increases returns when you reinvest earnings. If you earn rewards and periodically add them back to your principal—daily, weekly, or whenever a strategy auto-compounds—your earnings start generating additional earnings, pushing the effective annual rate above the simple APR. The gap widens as compounding becomes more frequent and as the underlying rate increases. In DeFi, the difference can also reflect product design: a vault might quote an APY because it compounds rewards internally, while a basic supply market might quote APR because it assumes you do not reinvest. Always verify whether compounding is automatic, optional, or impractical due to transaction costs.

In short, APR is a useful comparison tool for simple annualised rates, but your real-world outcome depends on compounding, fees, and how variable rates evolve—especially across DeFi markets and strategies discussed in what is defi.