APR vs APY in Crypto: Which One Pays You More?

If you’ve started exploring DeFi staking or yield farming, you’ve probably seen APR and APY thrown around everywhere. Most people mix them up—and honestly, it’s easy to see why. Let’s break down what actually matters for your wallet.

The Quick Version

APR = Interest on your principal only (no compounding) APY = Interest on your principal + previously earned interest (with compounding)

That’s it. But the money difference can be huge over time.

How APR Works

APR is straightforward math. If you deposit 10 BTC at 6% APR for one year, you get 0.6 BTC in interest. Period. Your earnings don’t earn their own earnings.

Formula: APR = Rate × Time

Example: 10 BTC × 6% × 1 year = 0.6 BTC gained

In crypto, APR is common in lending pools. You lock up your tokens, earn a fixed percentage annually, no compounding magic involved.

How APY Works (The Compounding Magic)

APY factors in compound interest—meaning your interest earns interest too. With daily compounding (common in crypto), your returns stack up faster.

Formula: APY = (1 + r/n)^n - 1

• r = annual rate
• n = compounding periods per year

Real example: If APR is 6%, here’s what APY looks like with different compounding frequencies:

• Semi-annual compounding: 6.09% APY
• Quarterly compounding: 6.14% APY
• Monthly compounding: 6.17% APY
• Daily compounding: 6.18% APY

Daily compounding pays the most. Notice how it’s not a huge difference at 6%, but at 20%+ yields (common in crypto), the gap widens significantly.

APR vs APY: The Real Difference

Real Money Example

Let’s say you stake 10,000 USDT at a 5% annual rate for 3 years:

Using APR only: 10,000 × 5% × 3 = 1,500 USDT gained

Using APY (5% daily compounding): 10,000 × (1.05)^3 = 11,576.25 USDT total = 1,576.25 USDT gained

Difference: +76.25 USDT (5% more earnings just from compounding)

At higher yields (20%+), the APY advantage becomes life-changing.

Where You’ll See These in Crypto

Staking: Lock tokens on-chain → earn APR/APY as rewards

Yield Farming: Deposit tokens into liquidity pools → earn APY on deposited assets

Lending Pools: Lend crypto → earn APR/APY depending on platform

Most DeFi protocols display APY because it’s the actual return you’ll get—compound interest baked in.

Which One Should You Care About?

If you’re an investor/saver: Chase APY. It’s your real earning power.

If you’re a borrower: Look for lower APR. You’re paying the rate.

In crypto, yields are wild compared to traditional finance (20%+ is not uncommon), but the risk is also high. APY shows you the true picture of what you’ll actually pocket after compounding does its thing.

Bottom Line

APY > APR when you’re the one earning. The compounding effect turns boring returns into exponential growth—especially over years. Check what your platform actually offers (many hide APY in the fine print), and always factor in the protocol risk before chasing that 50% yield.