Hi there đź‘‹
APR (Annual Percentage Rate) and APY (Annual Percentage Yield) are two common metrics used to express returns in DeFi, but they measure yield in slightly different ways.
APR represents the simple annual return on an investment, without taking compounding into account. When a protocol advertises an APR, it assumes rewards are earned linearly over time, meaning your returns depend only on the base rate and how long your funds are deployed.
APY, on the other hand, includes the effect of compounding.
When rewards are automatically or manually reinvested, the yield compounds over time, resulting in a higher effective return than APR. While APY can look more attractive, it assumes consistent compounding and stable rates, which may vary in practice depending on market conditions and protocol mechanics.