When it comes to cryptocurrency interest rates, there are two main types: Annual Percentage Return (APY) and Annual Percentage Rate (APR). Both measure the amount of interest earned on an investment over a 12-month period, but APY is calculated using compound interest, while APR is not.
APY vs. APR
Therefore, in most cases, APY will be higher than APR. For example, if you invest $1,000 in 2% APY, you will earn $20 in interest over the course of one year. If your investment’s APR is 2%, you’ll only earn $16.67 in interest because the APR doesn’t take compound interest into account.
When it comes to cryptocurrencies, APY is often used to measure the interest earned on a crypto-asset on a lending platform. For example, if you deposit 1 BTC into a lending platform that offers 10% APY, you will earn 10% on your 1 BTC deposit over the course of a year.
However, it is important to note that APY can fluctuate based on the market. For example, if the price of BTC increases during the year, the value of your deposit of 1 BTC will also increase. This means that the interest earned on your deposit will be more valuable in US dollar terms.
On the other hand, if the price of BTC falls, the interest earned on your deposit will be less in dollar terms. This is why it is important to consider the market when comparing APY prices. To calculate the APY, you will need to divide the interest rate by the number of days in the year. Next, multiply that number by the number of days you hold the investment.
If you’re getting into DeFi (or any other type of investment, for that matter), learning the difference between APY and APR is worth it.
Which one is more accurate? APY or APR?
In general, APY is a more accurate measure of the interest earned on a cryptocurrency investment over a 12-month period. However, APR can still be useful in some cases. For example, the annual percentage rate can be used to compare the interest rates of different investments.
If you are looking to earn interest on your crypto, it is important to compare APY rates across different lending platforms. This will help you find the platform that offers the best return on your investment.
While the APY on investing in cryptocurrency may be higher than what you would earn from a traditional investment, it is important to remember that there is also more risk involved. Cryptocurrencies are still a relatively new and volatile asset class, and as such, their prices can fluctuate significantly. Before investing in any cryptocurrency, make sure you do your research and understand the risks involved.
