What Is APY In Crypto?
✍️ 26 September, 2022 - 19:08 👤 Editor: Jakub Motyka
- Annual Percentage Yield (APY) is a widely used term in traditional finance and in the world of cryptocurrencies.
- It refers to the total return on an investment in one year, taking into account compound interest. Annual return? Compound interest? Here we explain it to you.
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Annual Percentage Yield, or APY, is a commonly used measure in traditional finance and cryptocurrencies. It represents how much you can earn on your assets using different tools such as staking and yield farming. In this way, it allows cryptocurrency investors to compare the returns obtained between the different platforms and assets, and choose the one that suits them best.
The APY takes into account the accumulated performance and what it will generate over the course of a year. For this reason, it is a very important metric when calculating the passive income generated by savings. With the boom in Proof of Stake (POS) networks that is fueling the latest Ethereum upgrade, The Merge, many platforms have started to release new savings tools. For this reason, it is important to be up to date with all the terminology necessary to be a profitable investor.
What Is APY In Crypto And How Is It Different From APR?
As we have already said, the APY refers to the projection of the annual return obtained from a deposit or through the staking of cryptocurrencies. This takes into account the interest compound, which is the sum of the profit obtained on the original investment. In other words, add to the calculation of the total benefit the profit obtained daily in the process.
On the other hand, the APR or annual percentage rate, is the interest obtained from the assets invested in the period of one year. It is often used to refer to the fees that investors receive during the lending of assets and cryptocurrencies. Unlike the APY, the APR does not take into account compound interest, which is why the earnings expressed will be different.
What Type Of Cryptocurrency Investments Does The APY Apply To?
Cryptocurrency investors can generate passive income while saving cryptocurrencies. This can be through asset lending, staking, yield farming, providing liquidity on exchanges, among others. Compound interest is a powerful tool capable of multiplying saved assets, in a simple and safe way. In conclusion, it is necessary to understand this calculation in depth and what is behind it in order to calculate profits correctly.
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