APR – Annual Percentage Rate
DeFi Strategies
APR (Annual Percentage Rate) is the yearly interest rate charged or earned on a loan or investment, without taking compound interest into account. In both traditional finance and DeFi, APR is commonly used to show borrowing costs or staking returns, offering a simpler but less precise measure than APY.
Use Case: A DeFi protocol offers 8% APR on $KAU staking rewards. This means for every 100 tokens staked, you’d earn 8 tokens over one year if the rate remained constant, with rewards distributed periodically but not automatically reinvested.
Key Concepts:
- APY – Annual Percentage Yield — Includes compound interest effects, typically higher than APR.
- Staking — Common DeFi activity where APR displays expected annual returns.
- Yield Farming — Strategy often marketed using APR to show potential earnings.
- DeFi (Decentralized Finance) — Ecosystem where APR rates fluctuate based on protocol demand.
Summary: APR provides a straightforward way to compare interest rates across different protocols and traditional financial products. While it doesn’t account for compounding effects like APY, it remains essential for understanding baseline earning potential in both centralized and decentralized finance.