// GLOSSARY -- DEFI
What is APR (Annual Percentage Rate)?
Annual Percentage Rate (APR) is the annualized return on a position without compounding — representing the base rate of yield before reinvestment effects are considered.
WHY IT MATTERS
APR is the simpler yield metric: what you'd earn in a year at the current rate, without reinvesting returns. 10% APR on $1000 = $100 in a year, paid out but not compounded.
In DeFi, APR is more honest than APY for positions that don't auto-compound. If you're earning trading fees that accumulate but aren't reinvested, APR reflects your actual experience better.
The gap between APR and APY grows with compounding frequency. At low rates (5%), the difference is minimal. At high rates (100%+), daily compounding can make APY significantly higher than APR.
FREQUENTLY ASKED QUESTIONS
How to convert APR to APY?
APY = (1 + APR/n)^n - 1, where n is compounding periods per year. For daily compounding: APY = (1 + APR/365)^365 - 1.
Which should I use for comparison?
Use APY if comparing auto-compounding strategies. Use APR if comparing non-compounding positions. Be consistent — don't compare one protocol's APR to another's APY.
What's a good APR in DeFi?
3-8% APR for low-risk strategies (stablecoin lending, ETH staking). 10-30% for medium-risk (volatile pair LP). Higher APRs exist but with proportionally higher risk.