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FAQ 31 – What is APY?
Definition of APY
The APY represents “the Annual Percentage Yield”, that is to say the real rate of return obtained in one year if it is compound interest. These are added to the balance.
When you want to know how much you will earn on your balance during the year, the APY tells you the total amount of interest over the given period.
How does the APY work?
Keeping cryptocurrency in a savings account by depositing the tokens allows users to earn compound interest.
This is possible thanks to cryptocurrency exchanges but also thanks to wallet applications and DeFi.
Interest earned by users is often from the same cryptocurrency that was deposited.
How to calculate the APY?
APY = (1 + r / n) ^ n – 1
Here, r represents the interest rate, n is the number of compounding periods per year.
What is the difference between APY and APR?
The APR represents the Annual Percentage Rate, the unfunded rate of return (this is the gross interest, called simple, earned over one year.
The APY represents the Annual Percentage Yield, the real rate of return obtained in one year (this is compound interest). The user inserts the interest they earn as they go along.
Why do staking?
Staking means securing the network operations of a blockchain by holding funds in a crypto wallet.
Immobilizing your cryptocurrencies in a smart contract allows you to benefit from rewards afterwards.