What Is APR in Crypto?
APR. Annual Percentage Rate. Yearly rate of return on a crypto position expressed as a percentage.
Stake 1,000 tokens at 10% APR. After one year, 100 tokens earned. No compounding. Flat rate. What you see is what you get assuming rewards never get reinvested.
APR vs APY
Two different ways of expressing returns. Platforms use both. Getting them mixed up costs money.
- APR. Simple interest. No compounding. 10% APR on $1,000. End of year: $1,100. Exactly.
- APY. Annual Percentage Yield. Same base rate but compounding included. Rewards reinvested automatically, earning returns on top of returns. 10% APR compounded daily becomes roughly 10.52% APY. End of year: $1,105 instead of $1,100.
Small gap at 10%. Gets significant fast at higher rates. 50% APR compounded daily becomes roughly 64.8% APY. Same base rate. Very different end number.
Protocols displaying APY look more attractive than ones showing APR at the same underlying rate. Worth checking which one is displayed before comparing yields across platforms.
Where APR Shows Up in Crypto
Staking. Lock tokens to secure a network. Earn a percentage annually. Cardano, Ethereum, Solana all show staking returns as APR or APY depending on the platform.
Lending protocols. Deposit into Aave or Compound. Earn interest from borrowers. Rate displayed as APR. Moves with supply and demand in the pool.
Liquidity pools. Provide liquidity to a DEX. Earn a share of trading fees. Fee APR calculated based on recent volume relative to pool size.
Yield farming. Rotating capital across DeFi protocols chasing the highest available rate. APR is the primary number being compared and chased.
Real Example
Deposit $5,000 USDC into a lending protocol. Underlying rate is 8% per year.
Platform pays rewards but you never reinvest. Pure APR. No compounding.
After 12 months: $400 earned. Total: $5,400.
Same deposit, same underlying rate. Platform auto-compounds monthly. APY comes out to roughly 8.30%.
After 12 months: around $415 earned. Total: $5,415.
Small gap at 8%. Run the same comparison at 60% and the difference becomes hundreds of dollars on the same deposit. Same underlying rate. Compounding frequency is the only variable.
The Problem With High APR
Triple digit APR exists everywhere in DeFi. Usually isn't what it looks like.
New protocol launches. 300% APR to attract liquidity.
Few things happening behind that number.
Rewards paid in the protocol's own new token. No established value. Massive emission schedule printing new tokens constantly. APR looks high because lots of tokens distributed. Each token worth less as supply inflates.
By the time the math plays out, 300% APR in a token that dropped 90% returned less than a savings account.
Real yield matters more than headline APR. Real yield means returns from actual protocol revenue. Trading fees, interest margins, real economic activity. Not token emissions inflating the number.
What Sustainable APR Looks Like
No fixed rule. Context determines it.
Stablecoin lending on established protocols. 3-8% APR. Backed by real borrower demand. Sustainable.
ETH staking. 3-4% APR. Comes from network fees and issuance. Real yield. Predictable.
New DeFi protocol. 200% APR. Token emissions paying it. Unsustainable. Emission schedule ends or token collapses. APR drops to something real or protocol dies.
Chasing the highest APR without understanding what backs it is one of the most reliable ways to lose money in DeFi.
