Crypto glossary
APR (annual percentage rate)
APR (annual percentage rate) is the simple yearly interest rate earned or paid on an amount, without counting the effect of compounding during the year.
APR expresses a return or a borrowing cost as a straight yearly percentage. A 10% APR on $1,000 means $100 over a year if the rate stays fixed and the interest is not reinvested. It is calculated simply as the periodic rate multiplied by the number of periods in a year.
In crypto, lending protocols often show borrowing costs as APR, while staking services and liquidity pools may show either APR or APY. APY includes compounding, so for the same underlying rate it is always equal to or higher than APR, and the gap widens with higher rates and more frequent compounding. Many DeFi rates are variable and recalculated every block.
When comparing offers, check which figure is quoted, whether the rate is fixed or variable, and whether part of the return is paid in a reward token whose price can fall. A high APR built on emissions can shrink fast.
Example
A pool advertising a 20% APR pays $200 a year on $1,000 if rewards are left alone; compounding them daily would turn the same rate into an APY of about 22.1%.
