What is APR vs APY?
This is a common thing we see in the DeFi world but also just in our general lives but many people don't understand what the difference is between APR and APY and how much of a drastic effect it can have.
What APR and SPY stand ofr
APR - Annual percentage RATE
APY - Annual percentage YIELD
As we can see above there are two big words Rate and Yield both of which mean very different things. Your APY takes into account compounded interest while APR does not. This might seem like a little thing but it's not and here's why.
Compounding Interest
Compounding interest mean taking the interest you earned and earing interest on top of it. This can go one of two ways for you. Very well or VERY bad and the very bad is stacked against you.
The Bad
You know that pesky credit card you might be using with that high 15% interest rate if you don't pay it off each month? Well that 15% interest also compounds and gets interest added on top of it.
The Good
Invest $1,000 and earn 10% on it would look something like this all in your favor.
How It Applies To DeFi
In the world of DeFi we see APR and APY thrown around a lot and it's why it's important to know how each works. Let's take a look at some examples in CubDeFi
The world of DeFi is a beautiful thing! No longer will you get 1% interest from your savings instead we are talking 10%+ and in some cases upwards of nearly 100%!
In the screenshot above we can see our Total APY is 63.14% and the APR is 48.96%
Broken down what this means is that we are earning 48.96% at the moment on our cub however because we are auto compounding in the kingdom 720 times a year this means the CUB interest gets restaked and earns as well changing us to a 63.14% APY.
This is the power of compounding as clear as day. If we just put CUB into a Den and let it sit there all year we would earn 48.96% however because of the compounding nature we get an extra 14.18% on our CUB. Not bad!
*It's important to note that DeFi changes rapidly and the values shown above are subject to change.
So now that you know the difference are you going to start compounding your interest and crypto?