APR

APR, or annual percentage rate, is the simple yearly rate of return or cost of an investment or loan, quoted without compounding. If a DeFi pool advertises a 12 percent APR, earning that rate steadily for a year on a static deposit yields 12 percent — and pro-rated over shorter periods, one month at 12 percent APR earns about 1 percent.

A concrete example: you deposit 1,000 USDC into a lending protocol paying 8 percent APR. After a year of unchanged rates, you have earned 80 USDC in interest. If you periodically withdrew that interest and redeposited it, your effective return would be slightly higher than 8 percent — that compounded figure is the APY, not the APR. This is the key distinction: APR ignores compounding, APY includes it, so for the same underlying rate the APY is always the larger number. A common misconception is treating the two as interchangeable; protocols sometimes display whichever looks better.

In DeFi, quoted APRs are usually variable, recalculated continuously from pool utilization, trading volume, or reward emissions — the number you see today is a snapshot, not a promise. Reward APRs paid in a protocol's own token deserve extra skepticism, since the token's price can fall faster than the rewards accrue, making the realized return far lower than the headline rate.