The difference in one line
APR is the rate before any reinvestment. APY is the rate after rewards are added back and start earning themselves. Same underlying yield, two different numbers.
APR = n × ((1 + APY)1/n − 1)
where n = compounding periods per year
What frequency is worth
| Compounding | APY on a 12% APR |
|---|---|
| Annually | 12.000% |
| Quarterly | 12.551% |
| Monthly | 12.683% |
| Daily | 12.747% |
| Continuously | 12.750% |
Notice where the gains stop. Going from annual to monthly buys most of the benefit; going from daily to continuous buys almost nothing. Anyone advertising a product on the strength of "compounds every block" is selling a rounding error.
Reading advertised yields
The conversion matters because platforms are inconsistent about which figure they publish, and the gap widens with the rate. At 5% the difference between APR and APY is small enough to ignore. At 80% it is enormous — a 80% APR compounded daily is roughly 122% APY, and quoting the second number is a much better advertisement than quoting the first.
- Check whether rewards auto-compound. An APY figure assumes reinvestment. If you have to claim manually and pay gas each time, you will not achieve it.
- Subtract the costs. Validator commission, performance fees and withdrawal costs all come off the advertised rate.
- Ask where the yield comes from. Trading fees, lending demand and token emissions are three very different things wearing the same percentage sign. The last one is often paid in a token whose price falls faster than the yield accrues.
Very high yields are a description of risk
A rate far above what the rest of the market pays is not a discovery — it is compensation for something. Smart contract risk, a depeg, a lock-up, or emissions that dilute you while you earn. To see what a rate produces over time on a real balance, use the staking calculator.
Common questions
What is the difference between APR and APY?
APR is the simple annual rate with no reinvestment. APY includes compounding, so for the same underlying yield APY is always the higher figure.
How do I convert APR to APY?
Divide the APR by the number of compounding periods, add one, raise it to the power of that number of periods, then subtract one.
Does daily compounding beat monthly?
Slightly. On a 12% APR the difference is about 0.06 percentage points a year. The headline rate matters far more than the frequency.
Why do platforms quote APY instead of APR?
Because it is the larger number. It is only achievable if rewards are actually reinvested automatically and without cost.
Is a high APY always good?
No. Unusually high yields usually reflect unusually high risk — thin liquidity, token emissions that dilute holders, or a contract that has not been tested by time.