What are APR and APY? The compounding difference

APR, or Annual Percentage Rate, expresses an annual rate without compounding in crypto yield displays. APY, or Annual Percentage Yield, includes the effect of reinvesting rewards so that they can earn further rewards. The APR–APY distinction concerns the calculation, not a promise of higher investment quality.

A 12% APR does not mean 12% earned each month. Converting it to an APY requires a reinvestment frequency and assumptions about the rate remaining available. When rates change, an annualized number based on recent conditions cannot establish next year’s outcome.

Example: reinvesting each month

Assume 1,000 tokens earn a fixed 12% APR for a full year. Without reinvestment, the reward is 120 tokens and the total is 1,120. If a 1% monthly reward is added to the earning balance every month, the result is 1,000 × 1.01 to the power of 12 ≈ 1,126.83 tokens. The corresponding APY is approximately 12.68%.

The hypothetical calculation excludes fees, taxes and losses. A falling token price could leave those extra tokens worth fewer dollars than the initial holding.

For staking, read deductions and withdrawal conditions alongside the advertised rate. The APR/APY calculator can compare assumptions, but its gross output is not automatically your net result.

The Lido staking cost example compares small and larger balances after network expenses, alongside the quoted rate.