APY and APR?

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or
orchidmuskrat79
·2020.06.28 17:00

What are the differences between APY and APR? And why are we using them more often in the crypto sphere (DeFi)?

Answers

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The primary difference between APR and APY is that APY is inclusive of compounding interest.

Imagine the following situation: You have 100 BTC and you have found two lending programs that seem suitable. Option A - 10% APR if you lock your BTC for one year with 52 periods in the year (weekly). Option B - 10% APY if you lock your BTC for one year with 52 periods in the year (weekly).

Option A - This lending option will return 110 BTC after one year. Option B - This lending option will return 110.51 BTC after one year.

The reason option B is better is that APY is inclusive of interest paid in previous periods.