APY vs APR: Do you really understand what you are earning?

If you invest in crypto and see “APY 12%” or “APR 10%”, do you know the difference? Most people don't.

The trick is in compound interest:

• APR = simple rate, without compounding (what you see is what you get)
• APY = includes “interest on interest” (earns more than it says)

Real example: APR 2% vs APY 3%. That 1% difference comes from automatically reinvesting the earnings. It may seem small, but over long periods it adds up significantly.

The formula is easy:

APY = (1 + r/n)^(nt) - 1

Where r = nominal rate, n = compounding periods per year, t = time.

Where do you see APY in crypto:

• Lending: You lend your crypto, receive agreed interest. Low risk, moderate APY.
• Yield Farming: You move assets between protocols seeking maximum profits. High APY = high risk (! Be careful with new platforms!).
• Staking: You lock your coin in the PoS network and earn rewards. It usually has a more attractive APR.

The important thing: APY gives you the full picture of profitability, but it's not everything. Market volatility, liquidity risks, and smart contracts also play a role. Don't just look at the %, weigh the risk.