YIELDS & RETURNS

APY (Annual Percentage Yield)

Definition

Annual Percentage Yield (APY) represents the real rate of return earned on an investment, taking into account the effect of compounding interest. In DeFi, APY shows how much you can earn annually from lending, liquidity providing, or staking.

Example

💡 Example

A liquidity pool offering 15% APY means your initial investment would grow by 15% over a year with compounding.

Risks to Consider

⚠️ Risks
  • Impermanent loss for LP tokens
  • Smart contract risk
  • Protocol risk

Common Questions

Where is the yield coming from?

If you cannot answer this question precisely, you are likely to be the source of yield.

What is the difference between APR and APY?

APR shows simple interest while APY includes compounding effects. APY is typically higher and more accurate for DeFi yields.

Related Terms

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