APY, or Annualised Percentage Yield, is a fundamental term in investments and decentralised finance (DeFi). It signifies the effective rate of return on an investment over a year, accounting for the effect of compound interest annually. This metric is especially pertinent for assessing the performance of various investment instruments, particularly in areas like yield farming and liquidity mining.

Unlike APR, which provides an estimate of return without considering compound interest, APY offers a more comprehensive view of an investment’s growth potential over time. This makes it a crucial tool for investors who want to understand the true value of their financial commitment annually, including the impact of interest compounding.

In the DeFi sector, APY is particularly significant in yield farming and liquidity provision incentive programs. Here, it helps investors calculate the expected return on their assets when deposited in liquidity pools or used in various farming strategies. It offers a clear and direct measure of annual yield, considering how compound interest can amplify earnings over time.

This metric is vital in the dynamic environment of DeFi, where investors are constantly seeking to optimise their returns. Il provides a basis for comparing different investment opportunities, allowing users to decide where and how to allocate their funds.

Moreover, it plays an essential role in financial transparency and education. By providing a realistic estimate of returns, it enables investors, especially those less experienced, to have more accurate and realistic expectations regarding their investments.

In conclusion, the Annualised Percentage Yield (APY) is a crucial indicator for anyone engaged in investments and decentralised finance. It offers an in-depth understanding of an investment’s potential yield, so it is essential for successfully navigating the dynamic and ever-evolving landscape of DeFi.

Correlated words

Liquid Staking

Liquid Staking allows the staked assets to be simultaneously utilised in other protocols, maintaining liquidity while earning rewards.


TVL (Total Value Locked) represents the cumulative value of cryptocurrencies locked in a DeFi protocol or decentralised application (dApp).

Wrapped Token

A Wrapped Token represents the value of one crypto on a different blockchain standard, facilitating cross-chain transactions and usage.


Bonding is the process of locking up cryptocurrencies as a commitment to participate in network activities and receive benefits.

Staking Derivative

Staking Derivatives are financial products derived from staking, with values dependent on the performance of staked tokens and network reward

Yield Farming

Yield Farming, an essential aspect of decentralised finance (DeFi), allows cryptocurrencies to be used to earn interest.


Swap is the exchange of one crypto token for another via a decentralised platform, enabling seamless asset conversion.


Staking involves holding cryptocurrencies in a digital wallet to support network operations and earning rewards for participation.

Smart Contract

A Smart Contract is a digital contract with terms automatically executed by the blockchain when predetermined conditions are met.

Crypto Lending

Crypto Lending involves providing loan services using cryptocurrencies on centralized or decentralised platforms.


ERC-20 is a token standard on Ethereum, allowing many projects to create and launch their own cryptocurrencies on its platform.


A Decentralized Exchange (DEX) facilitates cryptocurrency trading without intermediaries, directly utilising blockchain technology.


Decentralised Finance (DeFi) comprises financial solutions based on blockchain technology, operating in a decentralised manner.


DApp, or Decentralised Application, allows users to interact with blockchain-based services in a distributed network environment.


A Decentralised Autonomous Organisation (DAO) operates on blockchain principles, automating governance and decision-making.


CeFi, or Centralised Finance, is the centralised alternative to DeFi, offering traditional finance-like services on blockchain.


Arbitrage is the simultaneous buying and selling of assets in different markets to profit from price disparities.


The Annual Percentage Rate (APR) is the yearly interest rate earned on an investment or charged on a loan, expressed as a percentage.


Automated Market Makers (AMMs) are smart contracts in decentralized exchanges, facilitating liquidity and trade execution.


An Aggregator collects and presents similar content or services from various sources, exemplified by platforms like Yearn Finance.

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