What is APY (annual percentage yield)?

The annualized return on a deposit including compounding.

In crypto, advertised APYs on staking or lending products can change daily and are often paid in a token whose price may fall, so the headline number rarely reflects real return.

The number is a projection, not a rate you are owed. It answers the question "what would a year look like if today's conditions held," and in crypto today's conditions rarely hold for a week. Two products showing the same figure can differ entirely in what actually determines it.

How it works

APY differs from a simple rate by assuming earnings are reinvested. The formula is (1 + r/n) raised to the power n, minus 1, where r is the nominal annual rate and n is the number of compounding periods. At 10% nominal compounded daily, APY is about 10.52%.

What generates the yield differs by product, and that is what you are actually comparing. Protocol staking pays newly issued coins plus a share of transaction fees for securing the chain, and the rate falls as more coins are staked. Lending pays interest borrowers pay, so it moves with borrowing demand. Liquidity provision pays trading fees and carries impermanent loss. Incentive programs pay a separate token that the issuer prints.

The denomination matters most. A 20% yield paid in a token whose price falls 50% is a loss measured in dollars and a gain measured in that token. Rates quoted in the asset you deposited and rates quoted in an incentive token are not comparable.

Compounding frequency is often assumed rather than delivered. Some products compound automatically; others pay rewards you must claim and redeposit, each claim costing a network fee.

Example

Illustrative: you deposit $1,000 into a product advertising 12% APY paid in its own governance token. Over a year you receive tokens worth $120 at the price on each payment date. The governance token falls 60% over the same year. If you held every reward, the position is worth roughly $1,000 in the deposited asset plus about $48 of tokens. The advertised 12% was accurate as a token quantity and wrong as a dollar return. Figures are illustrative.

Why it matters when you buy

Yield is the main reason people leave assets on a platform rather than in their own wallet, and the rate is what makes that trade look worthwhile. What the rate never shows is the risk you take to earn it: platform failure, contract exploit, lockup, or a reward token nobody wants. Read what backs the yield before the size of it, and see the stablecoin yield risks guide and the staking guide.

Related terms

• staking — earning by helping secure a chain
• real yield — returns paid from actual revenue
• yield farming — chasing incentive-token rewards
• impermanent loss — the hidden cost of liquidity provision
• liquid staking token — a tradeable claim on staked assets
• unbonding period — the wait before staked funds return

Questions

Why does the advertised rate keep changing?

Because it is derived from live conditions. Staking rates fall as more of the supply is staked, lending rates track borrowing demand, and incentive rates change whenever the issuer changes the emission schedule.

Is APY the same as APR?

No. APR is the nominal rate without compounding and APY includes it, so APY is the higher number for the same underlying rate. Platforms are not always consistent about which they quote.

Does staking yield mean my holding grows in value?

It means you hold more units. Whether that is worth more depends on the price of the asset, which the yield says nothing about.