APY & APR: Similarities & differences.
Staking with Decentralized Finance most times is more rewarding than centralized Finance but it comes at a price, which is researching and understanding the terms and conditions attached to it. APY and APR are two things a user is likely to meet when it comes to staking or farming pools, these two are sometimes used interchangeably but it does not mean the same thing.
What does APR mean?
It refers to Annual Percentage Rate,it is the rate of interest applied on an amount per year. This means it points out the amount of interest to be received at the end of the year through the asset(s) staked. It does not take having a compounded interest into consideration,exclusive of the compound interest.
For example, if you invested $1000 and the APR is 10% this means you will get $1100 at the end of the year. This points out that the interest is not compounded.
What does APY mean?
This means Annual Percentage Yield, it is the amount or better still, the percentage rate of interest including the compound interest on an amount. It always take note of the compound interest, this is what makes it stand out. It tells you the exact amount of returns to be expected over time, since it accounts for the compound interest.
APY can also be said to be the annualized rate of return from an investment, factoring in compound interest that accrues or grows with the balance. Compound interest in this case includes interest earned from the initial deposit, plus the interest earned on that interest.
For example, if you stake an asset worth $1000 with an APR of 10%.The APY of such asset will be 10.25% considering that the compound interest has been taken into consideration.
Conclusion
The difference between these two is that APY includes compound interest and APR excludes it.
Bonus
On OKX,a world leading cryptocurrency exchange, there are always opportunities to earn by staking crypto assets with mouth watering APYs. The aim is to make user's assets work and earn more, regardless of the state of the market.
About OKX
A world-leading cryptocurrency spot and derivatives exchange, OKX offers the most diverse marketplace where global crypto traders, miners and institutional investors come to manage crypto assets, enhance investment opportunities and hedge risks.
We provide spot and derivatives trading — including futures, perpetual swap and options — of major cryptocurrencies, offering investors flexibility in formulating their strategies to maximize gains and mitigate risks.
Follow us:
Twitter: https://twitter.com/okxafrica
Facebook: www.facebook.com/OKExAfrica
Instagram: https://instagram.com/okx.africa
LinkedIn: https://www.linkedin.com/company/okx/
Medium: okxafrica.medium.com
Telegram group: https://t.me/OKXAfrica
YouTube: https://youtube.com/channel/UCgmKy1Aa0vJGoD-5eTSf9gA
