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.
How It Shows Up for Perps Traders
Even if you mainly trade CEX perps, apr still matters when you hedge with spot, move collateral across chains, or compare DEX perps funding to CEX funding. Thin pool depth and oracle lag can widen the gap between the index you hedge and the book you trade.
Formula and Worked Example
Example numbers only (not a live quote).
Suppose you compare a spot bag and a short perp hedge. If the hedge notional is $5,000 and the spot bag drifts 2% while the hedge mark moves 1.2%, the residual basis is 0.8% of notional, or $40 on that $5,000 book. That gap is the cost of an imperfect hedge, separate from funding.
Common Mistakes
- Treating a single print of apr as a trade signal without checking funding, open interest, and your liquidation price.
- Mixing venue conventions (coin-margined vs USDT-margined, cross vs isolated) and reading the wrong mark.
- Copying example numbers from a glossary into live size without checking the current book depth and fee schedule.
- Ignoring related terms that change the meaning of the print on a given day.
