What Is APY in Crypto?

APY (annual percentage yield) is the return on an investment over a year, accounting for compounding. A 5% APY on a stablecoin deposit that compounds daily returns more than 5% APR with no compounding. In DeFi, APY is quoted on everything from lending deposits to LP positions to staking rewards — and is often the first number a user sees when comparing protocols.

Also known as: annual percentage yield, apr

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APY vs APR

  • APR (annual percentage rate) — simple interest over a year, no compounding.
  • APY (annual percentage yield) — interest with compounding over the same period.

Example: 10% APR with monthly compounding = 10.47% APY. 10% APR with continuous compounding ≈ 10.52% APY. The higher the compounding frequency, the larger the gap between APR and APY.

In DeFi, protocols that auto-compound (Yearn vaults, Convex, Beefy) quote APY. Protocols that don’t — Aave’s raw deposit rate, Compound’s supply APY — typically quote APR, because users have to manually redeposit to compound.

How APY is sourced in DeFi

Three common yield sources:

  • Lending — Aave, Compound, Morpho, Spark. Depositors lend to borrowers and earn interest based on utilization. Rates are variable; USDC lending currently runs 3-8% APY on most venues.
  • Staking — ETH staking via Lido returns ~3-4% APY from validator rewards. Solana and Cosmos-chain staking runs 6-15%.
  • LP fees + emissions — Uniswap V3 LPs earn swap fees; Curve + Convex stack CRV emissions on top of stable-swap fees for a boosted rate.

Aggregators like DefiLlama, Pendle, and Yearn expose current APYs across hundreds of protocols, with the standard caveat that emission-based APYs are quoted at current token prices and can collapse overnight.

Risks and considerations

APY numbers are advertised, not guaranteed. Key things to check:

  1. Source — is the yield from real economic activity (fees, interest) or from token emissions that will dilute holders?
  2. Duration — APY assumes the rate holds for a year. Many farming rates are ephemeral (days to weeks).
  3. Token risk — if the yield is paid in a volatile token, a price crash can wipe out realized returns even when quoted APY looked attractive.
  4. Hidden costs — gas fees for claiming/compounding, bridge costs, slippage on exits. On small positions these can consume half of the advertised yield.

Treat APY as a starting filter. The real question is: can this yield be defended over the actual period you plan to hold? The gap between advertised and realized APY is often 40-60% after all costs and risks.

Related terms

Yield Farming Yield farming is the practice of moving capital between DeFi protocols to earn the highest available yield — usually a combination of trading fees, lending i… Staking Staking is the act of locking tokens as collateral to participate in a proof-of-stake consensus mechanism or to earn protocol rewards. TVL TVL (total value locked) is the dollar value of all assets held inside a DeFi protocol's smart contracts. Liquidity Pool A liquidity pool is a smart-contract-held reserve of two (or more) tokens that traders swap against.