DeFi vs CeFi Staking: Complete Comparison

Understanding the difference between APY and APR is crucial for making informed staking decisions. Let's break down both concepts with clear examples and calculations.

Simple APR (Annual Percentage Rate)

APR is the simple interest rate for a year. No compounding involved - just multiply your investment by the rate.

For example, with 1,000 USDT at 12% APR:

$$\text{Annual Return} = 1,000 \times 0.12 = 120 \text{ USDT}$$

This means:

• Yearly: 120 USDT
• Monthly: 10 USDT
• Daily: 0.33 USDT

Compound APY (Annual Percentage Yield)

APY includes compound interest - when your earnings also earn interest. The more often it compounds, the better!

The APY Formula:

$$\text{APY} = \left(1 + \frac{r}{n}\right)^n - 1$$

Where:

• $r$ = Annual interest rate (as decimal)
• $n$ = Number of times compounded per year

Let's use the same 1,000 USDT at 12%, but now with daily compounding:

$$\text{APY} = \left(1 + \frac{0.12}{365}\right)^{365} - 1 \approx 0.1274 \text{ or } 12.74\%$$ $$\text{Final Amount} = 1,000 \times \left(1 + \frac{0.12}{365}\right)^{365} = 1,127.49 \text{ USDT}$$

This gives you:

• Total Return: 127.49 USDT
• Monthly Average: 10.62 USDT
• Daily Average: 0.35 USDT

APY vs APR Comparison

Using our 1,000 USDT example:

• APR (12%): 120 USDT per year
• APY (12.74%): 127.49 USDT per year
• Extra Earnings from Compounding: 7.49 USDT

💡 Pro Tip: Always look for platforms that offer auto-compounding to maximize your returns!