Annual Percentage Yield (APY) of a cryptocurrency is the effective one-year rate of return on investment in a cryptocurrency with compounded interest. It differs from simple interest because APY reflects how often gainbtcs are compounded or reinvested during the time period.

In real life, APY is applied to indicate how much your crypto assets will grow in a year if you continue to reinvest the reward or interest you earn. It's applied heavily in yield farming, staking, crypto lending, and savings websites to determine your assets' true growth.

For instance, if a DeFi protocol is providing 10% APY on stablecoin deposits and compounding daily or weekly, your return at the end of one year will be slightly greater than 10% because of compounding.

So, then what is apy and apr in crypto?

It is a large number that allows you to compare various investment options and see the total earning potential of your crypto assets, especially in those systems that automatically re-invest rewards.


Annual Percentage Yield (APY) vs. Annual Percentage Rate (APR)
--------------------------------------------------------------

The fundamental difference between APY and APR in cryptocurrency is how they treat compounding. While both are annualized, they calculate returns in really a different way.

APR stands for Annual Percentage Rate and is a simple percentage rate of interest without regard to any investment that you are making out of your earnings. It is computed on the simple method of interest. For instance, you invested a sum of $1,000 in a platform that lends with 10% APR. You will be getting exactly $100 in a year - if there is no compounding.

APY, or Annual Percentage Yield, is the impact of compound interest. It's the amount that you actually see when your reward is being reinvested all the time on a regular time interval. What that does is cause your returns to rack up faster, especially if rewards are being compounded weekly or daily. The same example: an investment of $1,000 generating a 10% APY compounded monthly would be more than $100 in the first year.

So in terms of returns, the question is what is the difference between APR and APY in crypto. APR is what you'd have if you don't do anything with your rewards. APY is what you'd have if your rewards get re-invested automatically. On most staking and DeFi platforms, APY will provide a better impression of what you'll be having remaining - especially if you're not redeeming rewards frequently.

What Is APR (Annual Percentage Rate)?
-------------------------------------

Cryptocurrency Annual Percentage Rate or APR is just the straight interest rate you pay or get back on a loan or investment over a year without compounding. It's a very nice metric to use to describe fixed lending charges or fixed returns on most CeFi and DeFi protocols.

For instance, if you borrow a USDT loan on a centralized exchange with an interest rate of 8% APR, you will receive 8% of the initial amount after 12 months - without the compounding interest. For a crypto loan of 12% APR, that's the annual fixed fee of the loan, without compounding interest added as well.

APR is predominantly used in:

-   Crypto lending sites (e.g., Nexo, BlockFi)

-   Borrow/lend protocols like Aave or Compound

-   Liquidity pools with delayed returns

-   Credit line products on crypto-fintech products

When farming or staking, platforms will report APR in scenarios where rewards are disbursed but not automatically compounded. Investors, in such scenarios, need to reinvest manually to earn payouts almost as large as APY-level.

So when comparing yield-bearing products, it's important to know what is APR and APY in crypto, and what one is being marketed - because the distinction can have a dramatic impact on your actual earnings.

How to Calculate APY in Crypto
------------------------------

To realize your actual return on crypto investments, it's useful to know how APY is calculated. As opposed to APR, which is linear and straightforward, APY takes into account compound interest, and thus, your rewards earn more rewards over time.

Here is the easy formula for APY:

APY = (1 + r/n)ⁿ - 1

Where:

-   r is the yearly interest rate (as a decimal)

-   n = number of compounding periods per year

Let's try it with a crypto example:

You deposit a stablecoin at 10% APY per year and the protocol compounds rewards 12 times per year. Using the formula:

-   APY = (1 + 0.10 / 12)¹² - 1

-   APY ≈ 10.47%

So, while the rate is quoted at 10%, your effective return - with month-to-month compounding - will be closer to 10.47% at the end of the year.

Some crypto platforms compound daily or even per block, which can make the APY slightly higher. That's why you'll often see APY values that look a bit inflated compared to APR - they reflect the power of compounding over time.

Also watch out for "7-day APY" in crypto, which is a projected one-year yield according to recent performance over the last 7 days. It's commonly displayed in DeFi dashboards to indicate short-term returns to be expected for a whole year. They can be extremely different and are not to be interpreted as guaranteed rates.

Crypto Investments That Earn APY
--------------------------------

There are several various types of crypto products and protocols rewarding back in the form of APY. Most of them reward at a fixed interval and re-invest them automatically or offer an option for users to re-invest them on their own - compounding the growth over time.

The following are the most trending crypto investments rewarding APY:

### 1\. Staking

The most frequent method of gaining APY in crypto is by staking, in which the users bond their tokens to validate on the behalf of a blockchain network (i.e., [Ethereum](https://exolix.com/currencies/eth), [Solana](https://exolix.com/currencies/sol), or [Cosmos](https://exolix.com/currencies/atom)) and receive rewards every now and then like 4% APY or even more based on the token as well as validator performance.

[![swap eth](https://blog.exolix.com/uploads/Frame_1991431864_3_13409df527.png)](https://exolix.com/currencies/eth){:target="_blank" rel="dofollow"}

In platforms like Rocket Pool or Lido, the APY is compounded into token derivatives like stETH, so your balance grows daily automatically without any human intervention.

### 2\. DeFi Yield Farming

Yield farming involves providing liquidity to decentralized exchanges like Uniswap, PancakeSwap, or Curve. Traders receive APY in the form of trading and token charges, which are paid in native tokens or governance tokens.

DeFi protocols typically display what is APY in staking crypto on their homepages - and well over 50% or more. There is volatility and risk of impermanent loss with high APY if costs-free.

### 3\. Savings Accounts

Centralized services like Nexo, YouHodler, and the recently canceled BlockFi have offered crypto interest accounts with reputed APYs. They borrow your crypto against institutions or margin traders and return a percentage of the yield to you.

They are neither DeFi nor custodial services with money not yours. Counterparty risk must be factored in when depositing.

### 4\. Stablecoin Pools

Stablecoin farming or lending - [USDC](https://exolix.com/currencies/usdc), [USDT](https://exolix.com/currencies/usdt), or DAI tokens - will yield lower but stable APYs. They are extremely attractive to risk-averse investors, especially with compounding automatization.

### 5\. Liquid Staking Derivatives:  

Lido (stETH), Frax (sfrxETH), and Coinbase's cbETH are just some of the protocols providing liquid staked ETH that accrue staking rewards. They can be routed elsewhere in DeFi while continuing to earn staking APY in the background.

APY Significance
----------------

Everyone who is interested in growing their crypto wealth by staking, yield farming, or interest accounts should be aware of what is APY in crypto refers to. APY provides the actual rate of return after compounding, and more often than not, it makes it a more accurate estimate of potential returns than APR. Whether you stake your ETH, farm stablecoins, or utilize DeFi protocols, APY allows you to compare between platforms' yield opportunities with ease.

Even if APY figures look appealing, especially for high-yield DeFi pools, remember that more yield means more risk - for example, impermanent loss, smart contract exposure, or platform insolvency. Make sure to learn the formula used to calculate rewards, the compounding frequency, and if APY is variable, fixed, or derived with short-term measures like 7-day APY rates. Lastly, the choice between APR and APY is all about knowing how your rewards build up over time - and which sites are best suited for your risk appetite and financial aspirations.

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What Is Annual Percentage Yield (APY) in Crypto? How to calculate APY in Crypto? (APY) vs (APR) comparison

What is APY in Crypto? 

Annual Percentage Yield (APY) of a cryptocurrency is the effective one-year rate of return on investment in a cryptocurrency with compounded interest.

What Is Annual Percentage Yield (APY)?

Ethereum is today one of the most ubiquitous blockchain platforms in the world, supporting thousands of decentralized applications, smart contracts, and digital assets. With its shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS), Ethereum introduced a solid alternative for ETH holders: staking. With staking, users are rewarded for securing the network and its operations. But should I stake my Ethereum? This article goes in-depth on the concept, benefit, method, and essential things to look at so you can decide if staking is the most effective method for your cryptocurrency investment strategy.

What Is Ethereum and Why It Matters
-----------------------------------

Ethereum is an open-source platform built on blockchain that enables developers to build and execute decentralized applications (dApps). Ethereum was established in 2015 by co-founders like Vitalik Buterin. Ethereum brought into existence the idea of smart contracts-self-executing contracts whose terms and conditions are written directly into code lines and executed without the involvement of intermediaries. Ether (ETH), the native token, powers these transactions and serves as a store of value.

The utility of Ethereum lies in the versatility and all-around applicability. It is the foundation for most DeFi protocols, NFTs, DAOs, and much more blockchain applications. Ethereum 2.0 will go down in history as a colossus of an update, transitioning the network from PoW to PoS. This significantly reduced energy usage and enabled users to assist in securing the blockchain for real-world use-by staking ETH.


[![swap eth](https://blog.exolix.com/uploads/Frame_1991431864_3_13409df527.png)](https://exolix.com/currencies/eth){:target="_blank" rel="dofollow"}

What Is Ethereum Staking?
-------------------------

Staking Ethereum involves locking up your ETH to act as a method of securing the Ethereum network and validating new blocks. The reward is payment. Staking does not require expensive hardware or excessive electricity consumption like the mining done in the last PoW system. Validators in this scenario, chosen according to how much ETH they lock up, are paid for securing the network.

To be a full validator, you would have to stake 32 ETH. Validators propose and sign new blocks. If you don't have 32 ETH or don't want work, you can stake through pools, exchanges, or liquid staking protocols. Either way, the stakers are compensated in the long run for their work.

Staking is not just a way of earning passive income but also the way to participate in the long-term vision for Ethereum's growth. In the long term, staking will play a crucial role in decentralization, security, and network scalability as Ethereum matures.

Do You Need to Stake Your Ethereum?
-----------------------------------

It is good to stake your Ethereum in many different ways, especially for long-term ETH holders. Here are several reasons why staking can be helpful:

-   Earn passive income: Stakers receive ETH rewards simply for helping to secure the network. Rewards accumulate over time, giving you a second source of income.

-   Secure network: Staking secures Ethereum. The more ETH that is staked, the more resistant the network will be to attacks.

-   Greener verification: PoS staking is significantly more energy-efficient than PoW mining. By staking, you're contributing to a greener blockchain environment.

-   Less selling pressure: ETH of good quality must be staked or locked up usually, which can translate to reduced impulsive selling and stable price in the long term.

-   In sync with long-term holding: If you are already going to HODL your ETH in the first place, you get to have your assets working instead of just sitting on the sidelines.

However, staking isn't risk-free. Slashing fees can be triggered when validators are malicious or fail to perform their work. Liquidity can be limited according to your staking strategy.

Where Do I Stake My Ethereum?
-----------------------------

You've got several options if you're interested in knowing where should I stake my ethereum. Every method has its own ease, liberty, and risk:

-   Solo staking: Run your own validator node. This choice gives you total control and highest rewards, but requires 32 ETH, technical expertise, and an always running safe configuration. You will be responsible for updates, as well as any charges in case your node is offline.

-   Staking pools: Pools enable users to pool their ETH together as a group to achieve the 32 ETH threshold. These sites generally have smaller entry points and are for small holders. The rewards are distributed proportionally, and technicalities are usually handled by the operator of the pool.

-   Centralized exchanges: Coinbase, Binance, and Kraken are some exchanges that offer convenient staking. While secure and convenient, the products are custodial-your keys are stored on the exchange. You will probably pay fees or receive lower rates than other alternatives too.

-   Liquid staking: Liquidity protocols like Lido and Rocket Pool allow you to stake ETH and receive a liquid token (e.g., stETH or rETH) that represents your staked position. Tokens can be spent in DeFi for lending, farming, or trading, giving you more liquidity and flexibility as well as earning staking rewards.

Choosing the appropriate platform depends on your goals, technical skill, and how much Ethereum should I stake. Be sure to carefully benchmark fees, custody, and reward rates before making a choice.

How Much Ethereum Do I Stake?
-----------------------------

The amount of Ethereum to stake is solely determined by your present finances, investment goal, and risk tolerance. There is no one amount, but there are a few considerations that will help you determine what works best for you.

If you do go with solo staking, the Ethereum protocol requires a minimum of 32 ETH in order to run a validator node. This will give you full control and access to all the rewards but comes with the mandate of technical expertise, uptime guarantee, and the acceptance of greater risk (including potential slashing penalties).

For the average investor, though, it is simpler to stake through a pool or staking-as-a-service operator. These support staking with just 0.01 ETH and require no special hardware or infrastructure.

When deciding how much to stake:

-   Never hold more than ETH that you can keep illiquid for a significant period of time.

-   Remember that staking decreases liquidity-you won't be able to access your cash right away.

-   Diversify: you stake part of your ETH and leave the remaining funds for alternative investments or trading possibilities.

It is optimal to start small, understand the workings, and increase your stake as you become more experienced.

What Are the Risks of Staking Ethereum?
---------------------------------------

Despite the potential for earnings in staking ETH, it's essential that you understand the risks to make better decisions.

### 1\. Lock-Up Periods

When you stake Ethereum, your money is locked up for a certain amount of time. Even though Ethereum's recent updates have reduced withdrawal delays, there is always a line standing both to get in and out. You can be waiting days or weeks to receive your ETH back if the network is congested or has large staking/unstaking amounts.

### 2\. Slashing

If you're solo staking and your validator behaves incorrectly (e.g., double-signing or going offline for too long), part of your staked ETH could be "slashed," or permanently lost. Reputable staking platforms mitigate this risk for you, but it's still a factor to consider.

### 3\. Price Volatility

The value of ETH can fluctuate or plummet by astronomical amounts. As your ETH accumulates staking rewards, the unpredictability of the asset's value can exceed your rewards in case the market crashes.

### 4\. Custodial Risk

If you stake on a central exchange or third-party, you're leaving it up to them to hold your assets. While large exchanges like Coinbase are fairly secure, something like hacking or policy changes can happen to your ability to access your ETH.

### 5\. Unpredictability of Regulations

Depending on where you are, staking crypto may attract regulation scrutiny. Always stay up to speed with the regulations in your state on staking as well as taxation.

How Much I Can Earn Staking Ethereum?
-------------------------------------

Staking rewards vary and depend on several parameters, such as:

-   ETH staked in the network

-   Your staking strategy (solo or pool)

-   Network performance

-   Validator uptime and behavior

As of mid-2025, average annual returns on ETH staking are 3.5% to 5.5% APR, but rates fluctuate with demand and market conditions.

For example:

-   If you have 5 ETH and are given a 5% APR, you'd get 0.25 ETH every year-if everything is normal and there's no slashing or downtime.

-   Staking via pools or platforms normally takes a fee that's somewhat small, cutting down your yield by some percent.

Your returns are paid in terms of ETH. If ETH can appreciate considerably, your return will be more in dollars.

How to Start Staking Ethereum
-----------------------------

It is easy to start staking Ethereum if you follow the right method:

1\. Choose a Staking Method

-   Solo staking: 32 ETH and operating a validator node.

-   Staking pool: Invest any amount in a shared pool.

-   Staking-as-a-service: Use an exchange like Coinbase, Binance, or Kraken.

-   Liquid staking: Use an exchange like Lido or Rocket Pool, which offers staking with liquidity in the form of tokenized ETH (e.g., stETH, rETH).

### 2\. Select a Platform or Validator

If you go with a centralized service, use one that is acceptable in security, reputation, and fee transparency. If you go decentralized, research validator performance metrics.

### 3\. Stake Your ETH

-   Follow the platform's instructions to transfer your ETH.

-   Inspect expected rewards, lock-up duration, and risk notices.

### 4\. Check Performance

Your staking provider's console can be used to track rewards, uptime, and validator performance.

[![swap eth](https://blog.exolix.com/uploads/Frame_1991431864_3_13409df527.png)](https://exolix.com/currencies/eth){:target="_blank" rel="dofollow"}


Is Ethereum Staking for You?
----------------------------

Ethereum staking is an excellent source of passive income and a way to contribute to keeping the Ethereum network healthy-simply not for every user.

If you are willing to sacrifice the now for the future growth, you believe in the future of Ethereum, and you can bear to hold your holdings for some time, then staking is a good addition to your cryptocurrency investment plan. It is also perfect if you just want to actively participate more within the network without necessarily becoming a developer or a trader.

But if you value liquidity, or you're new to cryptocurrency and not ready to commit long-term, you may begin with [USDT to ETH swap](https://exolix.com/pairs/usdt-to-eth){:target="_blank" rel="dofollow"} or explore alternative methods of generating funds such as yield farming or lending. As the more mature Ethereum evolves and staking is made more adaptable, then the users are increasingly likely to see staking as a valuable and enduring investing utility.

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Should You Stake Ethereum? Staking Ethereum involves locking up your ETH to act as a method of securing the Ethereum network and validating new blocks.

Should I Stake Ethereum?

taking Ethereum involves locking up your ETH to act as a method of securing the Ethereum network and validating new blocks.

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Bradley Pierce

Crypto Niche Expert

Articles: 461

What Is Annual Percentage Yield (APY)?

Should I Stake My Ethereum?

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