APY (annual percentage yield) is a measure of the real rate of return earned on an investment, taking into account the effect of compounding interest over a year. In the context of cryptocurrencies and decentralized finance (DeFi), APY is often used to indicate the annual return on crypto assets deposited in various yield-generating platforms, such as staking pools, liquidity pools, and interest-bearing accounts.
Key points about APY include:
Compounding interest: APY includes the effects of interest compounding, which means it accounts for the interest earned on both the initial principal and the accumulated interest from previous periods.
Comparison tool: it allows investors to compare the potential earnings from different investment opportunities by providing a standardized annual rate.
Variable rates: in crypto, APY can fluctuate due to changes in market conditions, platform performance, and the specific mechanisms of the yield-generating activity.
Transparency: displaying APY helps investors understand the potential profitability of their investments and make informed decisions.
In summary, APY provides a comprehensive view of the potential earnings from an investment in crypto assets by considering the effects of compounding interest over a year.