📌 Introduction

When navigating DeFi lending, staking, and borrowing, you often see APR (Annual Percentage Rate) and APY (Annual Percentage Yield). While they seem similar, they work differently and impact your earnings or borrowing costs. Let’s break it down!

Difference Between APR & APY:

📈 What is APR? (Annual Percentage Rate)

APR is the simple interest rate you pay or earn over a year, without compounding.

Example:

• You borrow $1,000 at 10% APR → After 1 year, you owe $1,100 (without additional fees).
• You lend $1,000 at 10% APR → You earn $100 after a year (if no compounding applies).

💰 What is APY? (Annual Percentage Yield)

APY includes compounding interest, meaning you earn interest on your interest over time.

Example:

• You stake $1,000 at 10% APY, compounded daily.
• Instead of earning just $100 per year, your balance grows daily, and after a year, you’ll have slightly more than $1,100 due to compounding.

Commonly found in staking, yield farming, and savings products, APY maximizes returns through reinvestment.

APR vs. APY — Why It Matters in Lending

→ If you’re borrowing → Focus on APR (your total cost over time).
→ If you’re lending or staking → APY is key, as compounding boosts earnings.
→ Always compare APY vs. APR when analyzing DeFi returns — high APY doesn’t always mean better earnings if the compounding period is long!

APR & APY in Action on Rain.fi

On Rain.fi, lenders set their APR, while borrowers pay interest based on the loan terms. The actual return (APY) for lenders depends on how often they reinvest their earnings into new loans.

Ready to Take Control of Your Earnings?

Now that you understand APR vs. APY, you can make smarter choices when borrowing or lending. Whether you prefer fixed returns or compounding growth, knowing the difference helps you maximize your strategy.

💧 Try it out on Rain.fi! Set your own terms, earn interest, and explore the Lending and Borrowing universe — all with full control and no price-based liquidations.

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