APR vs. APY — why DeFi protocols quote both
APR is the simple annual rate with no compounding; APY is what you actually earn when rewards are reinvested. A 10% APR compounded daily works out to about 10.52% APY. Protocols that auto-compound (vaults, aggregators) usually advertise APY, while lending markets and liquidity mining programs often quote APR — comparing the two directly overstates the APR pool's payout.
How compounding frequency changes the result
The formula is APY = (1 + APR ÷ n)n − 1, where n is compounding periods per year. Going from weekly to daily compounding adds surprisingly little at normal rates — at 8% APR it's the difference between 8.32% and 8.33% APY. Compounding frequency matters far less than whether the advertised rate actually holds, which in DeFi it rarely does for long.
The risks a yield calculator can't show
Projected yield assumes the rate stays constant and your principal stays intact. Real DeFi yields fall as more capital enters a pool, reward tokens can lose value faster than they accrue, and smart-contract exploits or stablecoin de-pegs can wipe out principal entirely. Treat any double-digit 'safe' yield as compensation for risk you may not fully see.
How to use this calculator
Enter your principal — the amount you plan to deposit — then the advertised rate exactly as the protocol shows it, and select whether that number is an APR or an APY so the tool doesn't double-count compounding. Choose the compounding frequency that matches how the vault harvests (daily for most auto-compounders, weekly or manual otherwise), set your time horizon, and read off the ending balance, total yield in dollars, and the equivalent APY that lets you line up two pools quoting different measures.
A worked example
Deposit $5,000 at a 12% APR compounded daily for one year. The daily rate is 12% ÷ 365 = 0.0329%, and after 365 compounds the effective APY is (1 + 0.12 ÷ 365)365 − 1 ≈ 12.75%. The ending balance is about $5,637 — a total yield near $637, roughly $37 more than the $600 a flat 12% APR would pay. Stretch the same steady rate to three years and the position compounds to about $7,163. The lesson: frequency adds a little, but time and a rate that actually holds do the heavy lifting.