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What is APY (Annual Percentage Yield)?
APY is the real rate of return on an investment over one year, accounting for compound interest. In DeFi, APY includes token rewards and can range from 3% to 100%+.
Full Explanation
Annual Percentage Yield (APY) represents the total return you earn on an investment over one year, including compound interest. APY differs from APR (Annual Percentage Rate): APR doesn't account for compounding, APY does. In DeFi, APY comes from: lending interest, liquidity provision fees, staking rewards, and token incentives. Warning: extremely high APYs (>100%) are usually unsustainable — they come from inflationary token rewards that dilute value. Sustainable yields typically range from 3-15% APY.
Example
5% APY on staking ETH means ₹1,00,000 staked yields ₹5,000 in a year (with compounding). A 200% APY on a new DeFi farm likely won't last.
Related Terms
Last updated: 2026-03-21
