What Is APR (Annual Percentage Rate)?
Also known as: Annual Percentage Rate, Annual Interest Rate, Simple Annual Rate
In short
APR (Annual Percentage Rate) is the rate of return or cost of an investment or loan over one year, calculated with simple interest. It does not account for reinvested earnings, or compounding, and is commonly seen on staking and DeFi platforms.
The APR calculation only takes into account the return earned on the principal. For example, a user who deposits 1,000 USDC into a lending protocol offering 10 percent APR per year will earn 100 USDC after one year if they do not reinvest their earnings. On crypto platforms, APR is usually the daily or hourly reward rate annualized; the displayed rate indicates the return that could be obtained if current conditions continue.
The difference between APR and APY is compounding. APY assumes that earnings are added to the principal at certain intervals, and therefore appears higher than APR for the same rate. When comparing two platforms, it is necessary to check whether one shows APR and the other APY. On the borrowing side, APR shows the annual interest cost to be paid.
In DeFi, APR values are not fixed; the rate changes as the total liquidity in the pool, the utilization ratio and the price of the token distributed as rewards change. Very high APRs often come from inflationary token rewards, and when the reward token loses value, the real return falls. Risks such as smart contract risk and impermanent loss are also not reflected in these rates.
Last updated: · This content is for information purposes only and is not investment advice.