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APR

APR stands for Annual Percentage Rate. It’s the annual interest rate you earn or pay, without compounding.

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What is APR?

APR shows how much interest you earn on your initial amount over a year. It doesn’t include compound interest. That means interest you’ve already earned doesn’t earn additional interest in this calculation.

You may come across APR in crypto with staking, lending, and liquidity pools. Lending means loaning out your crypto in exchange for interest. With staking, you put your crypto to work helping a network function.

An example of APR

You lend 100 tokens at 10% APR. After one year, you earn 10 tokens in interest, for a total of 110 tokens.

This example assumes you don’t reinvest the interest you earn. That’s why the calculation is still based on the original 100 tokens.

Why is APR important in crypto?

Platforms use APR to show the annual return they expect to offer. This makes it easier to compare rates. However, APR doesn’t tell you exactly how much you’ll ultimately earn.

Sometimes, interest is automatically added to your balance and reinvested. This can lead to compound interest. APY is a rate that includes compounding, so it’s often higher than APR.

Also keep in mind that an APR isn’t guaranteed. Interest rates in crypto and DeFi can change. So a high advertised rate doesn’t automatically mean you’ll earn that return for a full year.

Disclaimer: This content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The information provided may be incomplete, inaccurate, or outdated and should not be relied upon as such. Nothing on this website should be considered a recommendation to buy, sell, or hold any cryptocurrency. Investing in crypto-assets involves risk of loss.