Understanding Crazy Crypto Yield Percentages: APR vs APY — The Power Of Auto-Compounding Explained

Have you ever wondered how these extremely high percentages on Yield Farms work? Can that even be sustainable? In this blog I want to explain the difference between APR and APY and the beauty of compounding percentages.

In short: APY is the real rate of return on an investment and takes into account compounding earnings, APR does not.

I really started to understand compounding and it’s exponential effect after reading the Beefy Docs. If you get 100% return per year, you will have 8 times your initial investment after 3 years.

growth = (1 + r)^x where r = return and x = number of times.

Examples

Okay, enough with the theory. Let’s look at an example. This is the TITAN/MATIC Pool on Iron.finance:

They correctly state APR, because an investment in the pool would leave you with 1332% more after a year as they are not auto-compounding returns. You have to manually harvest all the returns. You can think of your deposit and the returns as two different pools.

As you can see the APY is in the crazy Millions Percent. The daily * 365 equals to 1,434.45% which is much closer to the underlying farm. The difference can be explained with Beefys compounding strategy.

Cryptocurrencies allow to pay out returns on investments not on a monthly or daily basis, but per block. This means there is much more room for auto-compounding gains to be maid.

Just be careful, many farms and projects mix up APR and APY. I hope I made sense here. Let me know any questions or comments down below.

Cheers,
n1ce

None of this is financial advice. Please always do your own research.If you would like to support my work, consider using the following affiliate links:

Start earning dividends on your crypto — create an account with CakeDefi today, get $30 for depositing funds worth $50!

SignUp for a free publish0x account and start earning crypto for reading or writing!

Register with Binance* the biggest Exchange by volume and save 10% off trading fees forever!

1INCH Router* — Dex Router/Aggregator for lowest slippage on ETH, BSC & Polygon

Originally published at https://www.publish0x.com

--

--

--

Follow my crypto adventures in DeFi on Fantom, Terra & MasterNoding with YieldNodes. YieldNodes Start-Blog: https://cutt.ly/YN-Intro

Love podcasts or audiobooks? Learn on the go with our new app.

Recommended from Medium

Roboots Flash Sale Project Announcement

I Made $3million in Cryptocurrency and These Are the 10 Rules You Should Follow to Make Profits

Prepare To Join Airdrop Crypto On Teleram Part I

Bitcoin’s Perfect Storm

Investment Pools: What They Are and How Sentient Uses Them

ADALend: 5 Key Strengths Over AAVE

CRYPTOCURRENCY WALLETS

Aid Squad Token Transparency Portal

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
n1ce

n1ce

Follow my crypto adventures in DeFi on Fantom, Terra & MasterNoding with YieldNodes. YieldNodes Start-Blog: https://cutt.ly/YN-Intro

More from Medium

Pushing The Boundaries Leads To Learning

Bombay Mera Hai — A Love Letter

I’m waking up on a beautiful day.

Service to Love Day 1