What Is APR?
APR (Annual Percentage Rate) is the simple annual interest rate earned on deposits or paid on borrowing, without factoring in the effect of compounding. If a protocol offers 12% APR on staked tokens, you earn approximately 1% per month on your principal (but not on previously earned interest).
How APR Works
In DeFi, APR is commonly quoted for staking rewards, lending yields, and liquidity provision. The key difference from APY is that APR does not include compounding. A 100% APR means you double your principal in a year; a 100% APY means you more than double it because earned interest also earns interest throughout the year.
Why It Matters for Traders
When comparing DeFi yields, always check whether the protocol quotes APR or APY — the difference can be substantial at high rates. A protocol advertising 200% APY might only have a 100% APR if compounded daily. More importantly, DeFi APRs are variable and often decline rapidly as more capital enters the pool, so historical APR is not indicative of future yields.