What is APY?
APY stands for Annual Percentage Yield. It represents the total amount of interest you earn on a deposit over one year, including the effect of compounding.
APY vs APR
While APR (Annual Percentage Rate) shows simple interest, APY includes compound interest, making it typically higher. In DeFi, APY is the standard metric for comparing yield opportunities.
How APY is Calculated
APY = (1 + r/n)^n - 1
Where r is the interest rate and n is the number of compounding periods.