APR vs APY

The difference is compounding, under explicitly stated assumptions.

Look at	APR	APY
What it expresses	An annualized nominal rate under the quoted convention.	An effective annual yield including assumed compounding.
Model	Periodic rate = APR / periods per year.	APY = (1 + APR / n)^n − 1.
Illustration	12% nominal with monthly reinvestment.	About 12.68% with 12 equal periods.
What must hold	The rate convention must be clear.	The quoted rate persists; rewards can be reinvested at that rate.
What it omits	Usually does not describe fiat price changes.	Also omits price changes and may omit costs or penalties.

THE KEY DISTINCTION

What to carry forward

A displayed APY is not a guaranteed realized return. Reinvestment frequency, changing rates, costs, and the value of the reward unit matter.

MAKE IT CONCRETE

At an illustrative 12% APR, 100 units become 112 units without reinvestment or about 112.68 with monthly reinvestment for one year, before costs.

Annual rates describe a convention. Compounding, fees, changing token prices and losses determine what a position actually returns.

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A pool’s rates coordinate borrowers and suppliers. They change with demand, available liquidity and governance parameters.

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A displayed yield can combine fees, interest and token subsidies. Trace each source before combining the numbers.

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