APR

What is APR?

APR (Annual Percentage Rate) is the simple yearly interest rate earned on an investment or paid on a loan. It represents the "nominal" rate and does not account for the effects of compounding.

How does APR work?

1. APR is calculated by multiplying the periodic interest rate by the number of periods in a year.

2. The simple interest formula is:

   Interest = Principal * APR * Time

3. In DeFi, APR is often used to describe rewards for staking or providing liquidity.

4. It provides a baseline for comparing the raw yield of different protocols.

5. If you do not reinvest your earnings, the APR is your actual return.

Why does APR matter?

APR offers a straightforward way to understand the cost of borrowing or the return on lending. It is a standard metric across both traditional finance and DeFi, though it can be lower than the "real" return if compounding occurs.

Key features of APR

• Simple interest calculation
• No compounding included
• Yearly standardized rate
• Higher than periodic rates
• Used as a baseline for yield comparison

Examples of APR

• A lending protocol offering 5% APR on USDC deposits.
• A credit card charging 18% APR on outstanding balances.
• A farm displaying 50% APR in reward tokens for liquidity providers.