DeFi Yield Calculator — APY vs APR for Yield Farming
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Comparing APY and APR in DeFi Yield Farming
Decentralized finance (DeFi) protocols advertise yields using either APR (Annual Percentage Rate) or APY (Annual Percentage Yield), and the difference between these two numbers can be substantial. This calculator converts between APR and APY based on the compounding frequency, then projects your total returns and profit over a specified holding period. Understanding this distinction is critical because a protocol advertising 50% APR actually delivers roughly 64.9% APY with daily compounding.
The core formula is APY = (1 + APR/n)^n - 1, where n is the number of compounding periods per year. Daily compounding (n=365) produces the highest APY for a given APR, while no compounding means APY equals APR. The calculator also computes total value using the compound growth formula: Final Value = Principal * (1 + APR/n)^(n * t), where t is time in years. For partial-year durations, the exponent is adjusted proportionally. Gas fees for claiming and restaking are not included in the base calculation but should be considered for small positions where fees may erode returns.
DeFi yields are inherently volatile and the rates shown at any moment reflect current market conditions, not guaranteed future returns. Token reward emissions decrease over time, liquidity levels fluctuate, and governance votes can change protocol parameters. High advertised APYs often come from newly launched protocols with heavy token inflation that may not be sustainable. This calculator helps you model potential outcomes, but always factor in risks including smart contract exploits, impermanent loss for liquidity pool positions, and the possibility that the reward token itself could lose value.
Frequently Asked Questions
What is the difference between APR and APY?
APR (Annual Percentage Rate) is the simple interest rate without compounding. APY (Annual Percentage Yield) includes the effect of compounding. With daily compounding, a 50% APR becomes roughly 64.9% APY.
Are DeFi yields guaranteed?
No. DeFi yields are highly variable and can change dramatically based on token prices, liquidity, and protocol changes. Past yields do not guarantee future returns.
What risks exist in DeFi yield farming?
Risks include smart contract vulnerabilities, impermanent loss, rug pulls, token price depreciation, regulatory changes, and protocol exploits. Never invest more than you can afford to lose.