In crypto, two key terms define your passive earnings, often available via staking: APR (Annual Percentage Rate) and APY (Annual Percentage Yield). Both measure interest, but there’s a key difference – APR doesn’t include compounding, while APY does. That means APY gives a clearer picture of actual returns when interest is reinvested. You’ll see these terms when staking tokens, providing liquidity, or using yield farming. If managing crypto wallets feels complex, centralized exchanges often use APY and APR to make it easier to earn, though with trade-offs.
What is APR and APY?
APY in crypto shows you how fast your holdings can grow when interest is compounded, while APR only tells you the flat yearly rate. When you look at staking pools, savings products, or yield farms, APY lets you compare offers on a level playing field so you can see the real effect compounding has on your returns.
For example, a 10% APR that compounds daily gives an APY of about 10.5%, and that gap is extra money created just by leaving your funds to compound. And once you see that gap, you start to read any yield number in crypto with more care. In practice, you use APR and APY together to judge both return and risk across DeFi platforms and centralized exchanges.
The formula for APY and APR
APR is straightforward:
APR = Initial Investment / Interest Earned in a Year * 100
APY, however, includes compounding:
APY = [1 + (r ÷ n)] ^ n – 1
r = interest rate per period
n = number of compounding periods in a year
Example: With $1,000 in USDT
Let’s say you stake $1,000 in USDT at 10% APR with monthly compounding.
APR: You’d earn $100 after a year (10% of $1,000).
APY: With monthly compounding (n = 12), the formula looks like this: APY =[ (1+ 0.10) ^ 12] −1 = 3.13%
That means instead of $100 with APR, you’d earn about $104.70 with APY – because of compounding.
Where is the yield coming from?
Crypto platforms offer APY through various sources:
Staking: You lock up tokens to help secure a blockchain, and in return, you earn rewards.
Liquidity Pools: You provide funds for decentralized exchanges (DEXs) to facilitate trades and earn fees. It is often referred to as yield farming.
Lending: You lend cryptocurrencies to borrowers and collect interest. See the top crypto lending platforms.
Each source has its risks, but the key is that your earnings come from other users’ activities—trading, borrowing, or staking rewards.
Key differences between APR and APY in crypto
While compounding is the biggest difference, APR and APY also vary in how they are presented and affect your earnings.
APY typically results in higher returns because it accounts for compound interest, whereas APR shows only the base rate.
APY’s higher returns may attract users, but APR provides a clearer, fixed-rate expectation.
APR is common for lending and borrowing, where interest is fixed. APY is often used for staking and DeFi, where reinvestment happens automatically.
DeFi platforms highlight APY, while lending protocols and centralized exchanges often show APR.
Can you earn APY/APR on all cryptocurrencies?
Regardless of the title, it’s important to note that not all cryptocurrencies generate yield. The ones that do typically fall into these categories are:
Proof-of-Stake (PoS) Coins: Tokens like Ethereum (ETH) and Solana (SOL) allow staking. This is the case for most Layer-1 chains.
Stablecoins: USDT, USDC, and DAI can be used in lending platforms or liquidity pools.
Governance Tokens: Some DeFi tokens (like AAVE or COMP) offer rewards for participation.
Bitcoin (BTC), for example, doesn’t generate native yield. However, some centralized exchanges offer BTC APY through lending programs.
APY from the supply
In cryptocurrencies that have no DeFi demand and are not Layer-1 cryptos like ETH and SOL, a percentage of the supply is often reserved for ‘staking’ rewards.
Cryptocurrencies are locked for a set period, typically 14 days to a year. Upon locking the cryptocurrencies, a fixed or dynamic APY is awarded. The rewards do not come from generated fees but from a fixed amount of cryptos that were set aside.
Why does the APY change?
APY changes in crypto because it is recalculated all the time from real activity on the protocol, not locked in like a fixed-rate loan. Most platforms work out the current APY from recent data such as how many tokens you and others stake, how much is being borrowed, and how many rewards the protocol pays out in that period. When any of those inputs move, the math behind the APY shifts, and the number on your screen responds. So what you see as today’s APY is a live snapshot of recent conditions, not a promise that the same rate will hold for your crypto over weeks or months.
APY in crypto also reacts to market prices and user behavior, so it can rise or fall quite fast. If more people stake or provide liquidity, rewards get shared across more tokens, which pulls the APY down for each person, including you. If users exit a pool or a lending market while rewards stay the same, your share grows and the APY that you see can climb. And when rewards are paid in a volatile token, the APY moves with that token’s price, so you and I need to treat it as a moving estimate that can change rather than a fixed outcome.
APY on decentralized protocols
Instead of a bank setting a fixed rate, smart contracts on decentralized protocols such as Aave, Compound, and Lido pull live market data and update rates for lenders, stakers, and liquidity providers. Your APY then reflects how much interest borrowers are paying, how many people share the rewards pool, and how often those rewards roll back into the position.
So when you read APY on a DeFi dashboard, you look at a computed snapshot of on-chain activity rather than a static promise from a centralized provider like a bank. Lending protocols, for instance, show APYs derived from an interest-rate model tied to the usage of each asset pool.
On Compound, for example, the protocol measures interest every second, and the supply rate depends on how much of the asset is borrowed compared with how much liquidity sits idle, a metric called the utilization rate. A higher utilization rate pushes up borrowing rates, and the smart contract routes part of that stream back to you as supply APY.
On decentralized exchanges and liquid staking protocols, APY usually comes from trading fees or staking rewards that compound into the token you hold. Uniswap liquidity providers, for instance, earn a share of swap fees at set rates such as 0.05% or 0.3% per trade, and independent tools have reported 30-day APY figures from around 5% to above 90% for volatile pairs like USDC or WETH on Arbitrum.
Lido takes a different route by staking your ETH and issuing stETH, which tracks your position while smart contracts add staking rewards on top. When deciding which cryptocurrency to earn a yield, always check its total value locked (TVL).
APY on centralized exchanges
If managing crypto wallets or interacting with DeFi platforms feels overwhelming, centralized exchanges (CEXs) offer a simpler alternative. Many exchanges let you earn interest on Bitcoin and other assets through savings programs.
MEXC: BTC APY Options
BTC APY lives in the MEXC Earn section, which brings together flexible savings, fixed savings, and on-chain earn products so you can turn Bitcoin on a centralized exchange into a yield-generating holding. And if you prefer to keep things simple, you can enable Auto Earn for your BTC or other coins so MEXC automatically sweeps idle balances into chosen Earn products, letting your BTC APY build quietly while you focus on the rest of your plan. MEXC offers two types of savings:
Flexible Savings: Up to 1.80% APY (varies by balance tier).
Locked Savings (1 day): 0.38% APR, with daily interest distribution.
Flexible savings let you withdraw anytime, while locked savings require holding funds for a set period. Interest begins accumulating the day after you subscribe.
CEX.IO: BTC APY Options
BTC APY comes through the CEX.IO Earn program, where Savings and related Earn services let you move Bitcoin from your regular wallet into a dedicated account that starts generating rewards. You can choose a flexible savings setup if you want to move BTC in and out freely, or use locked savings and promotional offers when you’re comfortable committing your coins for a fixed period in return for a higher APY level on the same BTC balance. CEX.IO provides an approximate 0.5% annual reward for holding BTC in a savings account.
Interest is calculated annually but often distributed periodically.
For example, to achieve a 0.5% annual yield, a user holding 1,000 BTC would need to receive approximately 0.42 BTC per month (0.42 * 12 months ≈ 5.04 BTC, which is ~0.5% of 1,000).
Conclusion
DeFi platforms can show high APYs because rewards are compounded and sometimes paid in extra tokens, while centralized exchanges usually use APR style products that you may find simple to manage and to understand so when you know how APR turns into APY, you can ask sharper questions about where those yields come from, how often rewards are compounded, and what events could change them. This is what matters when deciding whether a DeFi pool or a CEX product fits you.
