18 Feb 2025

light mode

What is APY in crypto and why is it vital for crypto investing?

What is APY in crypto and why is it vital for crypto investing?

An APY is an annual percentage yield that not only brings the investor a partial return on their investment but also a percentage of the pledged rate.

On this page

What is APY?

Cryptocurrencies attract the most daring investors with their high or potentially high prices and the opportunity to get a significant APY. Various DeFi services – cryptocurrency lending platforms, cryptocurrency exchanges, and market makers – help them do this.

APY (Annual Percentage Yield) is an annual investment income that considers compound interest accrued above the interest from the initial investment. That is, the investor receives a set interest rate and profit calculated from it.

The APY formula is as follows:

APY = (1 + r/n )n – 1,

where “r” is the annual interest rate,

and “n” is the number of compound interest periods per year.

You don’t have to calculate the rate yourself. There is an APY calculator for that: it can easily be found on the Internet. 

The crypto market’s annual interest income is much higher than traditional banking and classic savings accounts. But don’t forget – the bigger the potential profit, the more significant the risks.

When is APY used in the crypto sector?

APY is used as a method of reward in many crypto investing areas.

Providing liquidity and yield farming

Many cryptocurrency exchanges, especially automated market makers, offer owners of digital assets to receive an annual percentage income for providing liquidity.

This requires making a deposit with crypto and locking the amount in the account to receive a reward in the form of a certain cryptocurrency. DeFi platforms distribute profits depending on the share of participants in the total liquidity pool.

It is also possible to earn on APY with yield farming. To join yield farming, you don’t need to withdraw tokens received from providing liquidity but rather lend them to the platform.

Cryptocurrency lending

This is another way to generate passive income in the form of APY from available cryptocurrencies. It requires investors to lend funds at interest. Cryptocurrency lending platforms are intermediaries between those who lend and those who borrow.


Staking

APY is often used for staking. As a reminder, staking is the locking of tokens, which operate on the Proof-of-Stake consensus mechanism in the stake pool to keep the blockchain running, as well as to verify transactions and add new blocks to the network. The staking participants receive income for their service in the form of a percentage of the amount of the lock. Staking is very popular in the cryptocurrency community because it offers a high APY.

How does APY work?

APY in the cryptosphere functions differently from the traditional financial sector. An investor receives an interest rate based on the amount invested, not on the dollar value of assets. Let's say a person chooses 5% APY income and deposits 1 bitcoin, then after 12 months, s/he will receive 0.05 BTC in interest. The price of BTC will not influence the chosen interest rate. This is why some investors are so attracted to the cryptocurrency market.

From time to time, you may come across platforms that offer enormous rates, reaching 1000%. This indicates fraud. It would help if you never trusted companies that promise too high profits. More real and safe rates are from 5 to 17%, sometimes 30%.

In addition, the final annual percentage yield depends on many factors:

  • inflation;
  • the macroeconomic environment;
  • level of supply and demand;
  • the frequency of accrual periods of compound interest.

And only the latter can be influenced. The longer the APY accrual period, the more substantial the return.

What is a seven-day APY in crypto?

Traditional banking offers an interest accrual once a month. Whereas in the cryptocurrency industry, you can set shorter interest payment periods starting from 7 days. There are compelling reasons for the short accrual periods. 

First, it is due to the volatility of cryptocurrencies. A seven-day APY can reduce the effect of price fluctuations. In addition, frequent payouts help to ensure that the promised annual percentage yield corresponds to reality. Thus, the investor has more confidence for long-term investments at interest. Even shorter accrual periods can be used to test the service.

APR vs. APY crypto

APR is the annual interest rate. The main difference between these two concepts is that APY accrues compound interest, while APR does not. Also, note that the annual interest rate includes additional costs from the transaction. That is, APR is accrued with the inclusion of fees by using simple interest. Therefore, the APY will always generate more profit. Especially over the long term and with monthly reinvestment.

So, the annual percentage yield brings cryptocurrency owners interest from interest and interest from the initial investment. Consequently, this tool is more profitable and popular than a simple rate in annual terms.

The content on The Coinomist is for informational purposes only and should not be interpreted as financial advice. While we strive to provide accurate and up-to-date information, we do not guarantee the accuracy, completeness, or reliability of any content. Neither we accept liability for any errors or omissions in the information provided or for any financial losses incurred as a result of relying on this information. Actions based on this content are at your own risk. Always do your own research and consult a professional. See our Terms, Privacy Policy, and Disclaimers for more details.

Articles by this author
Lawmaker Attacks Trump’s Meme Coin, Musk’s DOGE

Lawmaker Attacks Trump’s Meme Coin, Musk’s DOGE

Democratic Congresswoman Ayanna Pressley has criticized the DOGE agency and Trump’s meme coin, arguing they represent a dangerous shift in financial oversight.

Anton Kryshtal
LIBRA Meme Coin Mystery—Is There a MELANIA Connection?

LIBRA Meme Coin Mystery—Is There a MELANIA Connection?

LIBRA’s sudden launch has left the crypto world divided. Was it just another meme coin stunt, or is there a real connection to Javier Milei? And what’s this about MELANIA? The plot thickens.

The Coinomist
Scammers Tricked Investors with a Fake Saudi Meme Coin

Scammers Tricked Investors with a Fake Saudi Meme Coin

Scammers impersonating Saudi Crown Prince Mohammed bin Salman on X claimed to launch an “official” KSA meme coin. Spoiler alert: It was a total scam.

Anton Kryshtal
Italy Moves to Rein In Crypto as EU, U.S. Rules Diverge

Italy Moves to Rein In Crypto as EU, U.S. Rules Diverge

The Bank of Italy, together with the Italian securities regulator Consob, met with industry leaders to discuss the evolving rules for digital assets.

Anton Kryshtal
Weekly Analysis of BTC, ETH, and the Stock Market (Feb 10, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Feb 10, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
Weekly Analysis of BTC, ETH, and the Stock Market (Feb 3, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Feb 3, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

Artem Khomenko
How to Bump a Transaction in the Bitcoin Network

How to Bump a Transaction in the Bitcoin Network

Sometimes, Bitcoin transactions can get “stuck,” especially if a low fee was set. In such cases, you might wonder: Why is my Bitcoin transaction stuck?

bitOn
Inside Cryptocurrency Farms: How Digital Coins Are Mined

Inside Cryptocurrency Farms: How Digital Coins Are Mined

Cryptocurrency farms and mining have evolved significantly since Bitcoin launched in 2009. To understand their growth, it helps to look at the broader history of resource extraction.

The Coinomist
From Bulls to Ballers — Why Celebrities Are Flocking to Crypto

From Bulls to Ballers — Why Celebrities Are Flocking to Crypto

Trump’s meme coin isn’t an outlier—it’s part of a broader trend. Back in 2021, celebrities were minting NFTs, and by 2024, they had moved on to personal token launches. The connection between fame and crypto has been growing for years, even if many failed to see it.

Vlad Vovk
Which Macroeconomic Factors Make Crypto Rise or Fall? 

Which Macroeconomic Factors Make Crypto Rise or Fall? 

It happens when you check the market and crypto prices are up or down for no obvious reason. Then you do some research and find out that there are actually reasons outside the crypto space.

Anahit Avetisyan
How Blockchain Helps Combat Disinformation

How Blockchain Helps Combat Disinformation

Fake news has become a global issue, shaping public opinion, fueling social tensions, and even influencing political decisions. With the rise of social media, the spread of misinformation has accelerated, making it increasingly difficult to regulate. However, blockchain technology offers a promising solution in the fight against fake news.

Daryna Nesterenko
Trading Psychology: How to Avoid Falling Victim to Your Own Biases

Trading Psychology: How to Avoid Falling Victim to Your Own Biases

The most successful traders aren’t always the smartest. More often, those who excel are the ones who understand psychological traps, manage their emotions, and maintain rationality under pressure.

Vlad Vovk
The Bitcoin Kid’s 2011 Prediction – How Right Was He? 

The Bitcoin Kid’s 2011 Prediction – How Right Was He? 

In May 2011, an unusual video surfaced on YouTube. A 12-year-old boy explained Bitcoin – how it works and what its future might hold.

Anahit Avetisyan
SBF’s Prosecutor Quits – What It Means for Crypto Crime

SBF’s Prosecutor Quits – What It Means for Crypto Crime

Danielle Sassoon, Acting U.S. Attorney for the Southern District of New York, has resigned, making headlines this week. And you’ve definitely heard of one of her biggest “client” names.

Anahit Avetisyan
MORE
«Mass Adoption Isn’t About Tech – It’s About Perception». Bitmedia Founder Matvii Diadkov – About RWA, Web3, And Marketing

«Mass Adoption Isn’t About Tech – It’s About Perception». Bitmedia Founder Matvii Diadkov – About RWA, Web3, And Marketing

Matvii Diadkov, founder of Bitmedia, shared with us in an exclusive interview his expert insights on Web3 adoption, impact of GameFi and community-centering tendencies in the market.

The Coinomist
“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

The first crypto craze took place almost a decade ago. Overnight, many people found out about Bitcoin and its underlying technology, blockchain.

Lesia Dubenko
MORE