APR and APY
The strategies designed by Defily perform optimally over a long period of time when the effect of compounding can be really noticed. Thus, APY is the most accurate way to display actual expected interest.
It is also important to notice this displayed APY is dynamic and can change (increase and decrease) with time mainly by two factors:
- 1.The price of the reward token farmed and compounded into the principal
- 2.Amount of people or value locked inside the pool (usually rewards are fixed so more people or TVL implies that this reward is diluted)
Refers to the simple interest accrued from a particular investment over a 1 year period. This assumes no compounding of assets, which can be done cheaply hundreds if not thousands of times per year due to KardiaChain's extremely low transaction fees.
Refers to the compounded interest accrued from a particular investment over a 1 year period. APY reflects more accurately the expected yearly Return On Investment (ROI) of an asset on the Defily platform by a typical dragon holder.
The formula to calculate APY or effective annual interest rate:
- APY = Annual Percentage Yield (effective annual interest rate)
- APR = Annual Percentage Rate (nominal annual interest rate)
- n = number of times interest is compounded per year