APR
APR (annual percentage rate) is a yearly rate of return or interest that does not account for compounding: it shows what you would earn in a year if earnings were never reinvested.
How APR works
APR scales a rate to one year using simple interest. If a position earns 1% per month and the earnings are not added back to the principal, the APR is 12%. On loans, APR describes the yearly cost of borrowing in the same simple way.
In crypto, APR appears on lending platforms, staking dashboards and liquidity pools. Many DeFi rates are variable, so the APR shown is often a snapshot calculated from recent activity and can change by the hour.
APR versus APY
APY (annual percentage yield) includes compounding, the effect of earning returns on earlier returns. The same underlying rate always gives an APY at least as high as the APR, and the gap grows with more frequent compounding and higher rates.
Say you deposit 1,000 USDC at 10% APR. Without reinvesting you end the year with 1,100. If the rewards were compounded monthly, the APY would be about 10.47% and you would end with about 1,104.70; compounded daily, about 10.52%. When comparing offers, make sure you compare APR with APR or APY with APY.
Why the number can mislead
An APR is a rate, not a promise. A variable rate calculated from last week's fees says little about next month. Rewards are often paid in a token whose price can fall, so a high APR in that token can still lose value in dollar terms. And APR ignores costs such as gas fees, withdrawal fees or impermanent loss in liquidity pools.
Rates calculated over a very short period, then annualized, can also look enormous. A single busy day of trading fees multiplied by 365 rarely repeats.
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Frequently asked questions
Is a higher APR always better?
No. A higher APR often reflects higher risk, a volatile reward token or a short-lived incentive. The source of the yield matters as much as its size.
Why do platforms show APY instead of APR?
APY is the larger number for the same rate, because it assumes compounding. It is accurate only if rewards really are reinvested at that frequency.
Is APR fixed in DeFi?
Usually not. Most DeFi rates float with supply, demand and trading activity, so the displayed APR can change at any time.
Related terms
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