APY In Cryptocurrency: What You Should Know

APY In Cryptocurrency: What You Should Know

When it comes to investing, the notion of compound interest is universally understood. In fact, if you’ve ever heard anyone speak about how much they make (or lose) on their investments, they were probably referring to the compound interest rate they received. 

However, not everyone is familiar with annualized percentage yield (APY), which is an important part of understanding crypto markets. In this article we’ll cover what APY means in crypto and the factors that can affect your earnings if you decide to invest in cryptocurrency.

What Is Annualized Percentage Yield (APY)?

Annualized Percentage Yield (APY) is a way of expressing the interest rate on your savings account or investment.

It’s calculated by taking the interest rate and multiplying it by the number of years in a year, then dividing it by 365 (or 366). For example, if you earn 5% interest for one year on $1,000 deposited into an account with monthly compounding and $100 added each month:

5 x 12 months = 60% annualized APY

$1,000 + $100 = $1,100 at end of year 1 =

60% APR divided by 365 days in year 1 = 13.065% per month

How to Calculate APY

To calculate APY (Annual Percentage Yield), you can use the following formula:

APY = (1 + r/n)^n – 1[1]


r represents the annual interest rate

n represents the number of compounding periods per year[2]

For example, if you have an account with a 2% interest rate that compounds every three months, you would calculate the APY as follows:

APY = (1 + 0.02/4)^4 – 1[3]

Here’s the step-by-step process to calculate APY:

Divide the annual interest rate (r) by the number of compounding periods (n). In our example, this would be 0.02/4 = 0.005.

Add 1 to the result from step 1: 1 + 0.005 = 1.005.

Raise the result from step 2 to the power of the number of compounding periods (n): (1.005)^4.

Subtract 1 from the result of step 3: ((1.005)^4) – 1.

Convert the result to a percentage to get the APY.

Simple Interest Rate vs. Annualized Percentage Yield

Simple Interest Rate and Annualized Percentage Yield (APY) are both used to express the returns on investments or interest earned on savings accounts. However, they are calculated differently and serve different purposes.

Simple Interest Rate:

Also known as the nominal interest rate, it is the basic interest rate applied to a principal amount over a specific period of time.

It does not take into account the effect of compounding.

Typically expressed as an annual percentage rate (APR).

Simple interest is calculated using the formula: Simple Interest = Principal × Interest Rate × Time

Annualized Percentage Yield (APY):

APY takes into account the effect of compounding, which is the process of earning interest on both the principal and previously earned interest.

APY is a more accurate representation of the actual return on investment or interest earned on a savings account.

It allows for easy comparison of different investment options that have varying compounding periods.

APY is calculated using the formula: APY = (1 + r/n)^n – 1, where r is the annual interest rate and n is the number of compounding periods per year.


APY is generally higher than the simple interest rate because it accounts for the compounding effect.

Simple interest rate is easier to understand, but APY provides a more accurate representation of the actual return on investment.

When comparing investment options or savings accounts, it’s important to consider both the simple interest rate and the APY to make an informed decision.

How Does the 7-Day APY Work in Crypto? 

The 7-Day APY in crypto refers to the annualized percentage yield calculated based on the returns earned over a 7-day period. It is commonly used to compare the potential returns of different investments in the crypto space. The 7-Day APY provides a snapshot of the recent performance of an investment and helps investors make informed decisions when choosing between various crypto assets or platforms.

The 7-Day APY provides a snapshot of the recent performance of an investment for a particular trading pair such as LUNA USDT and helps investors make informed decisions when choosing between various crypto assets or platforms.

Keep in mind that the 7-Day APY is a short-term metric, and the actual returns on a crypto investment may vary over time due to market fluctuations and other factors. It’s essential to consider both the short-term and long-term performance of an investment when making decisions in the crypto space.

Does APY Represent Final Earnings?

The answer is no. APY does not represent final earnings. To calculate how much money you will actually make from a particular investment, you need to take into account how long it will take for your investment to mature and then compare that with other investments that offer similar APYs but shorter maturation periods. 

For example:

  • If two investments have the same APY but different maturity dates, then there’s no question that the one with the shorter maturity date would be preferable because its earnings could be realized sooner than those of its competitor (assuming no change in interest rates).
  • If two investments offer different interest rates but have similar maturities and therefore comparable payouts over time, then again there’s no question which one would be better suited for your needs–the higher-paying option.

What Is the Annual Percentage Rate (APR)? 

The annual percentage rate (APR) is the interest rate that applies to a specific loan or credit card account. It’s calculated by taking the interest rate, adding it to the number of times that interest is compounded in a year, and then dividing by 12 (the number of months).

The APR gives you an idea of what your total borrowing costs will be over time, as opposed to just looking at an annualized percentage rate on its own. Lenders use this information when deciding whether or not they want to lend money; if two people apply for loans with similar terms but one has a higher APR than another, it means their payments will be higher each month and therefore more expensive overall–so they might choose not to offer them any credit at all.

Factors That Influence Crypto APY

There are a number of factors that influence the APY of cryptocurrencies. The most important ones are supply and demand, inflation and compounding periods.


Inflation is the general increase in the price of goods and services over a period of time. Inflation eats away at your money, meaning that while you may have $1 million in savings today, it will be worth less than $1 million when you want to spend it tomorrow.

Inflation has a compounding effect because every year that goes by without any additional saving means less purchasing power for future years’ purchases. In other words: if inflation is 2% per year on average (which was true for most countries around the world between 2000-2018) then after five years there will be 20% more dollars needed to buy what could be bought with one dollar five years ago.

Supply and Demand

If you have a basic understanding of supply and demand, then you can easily understand how the price of coins is determined. If demand is high, prices go up; if supply is high, prices go down. Conversely: if demand is low and/or supply is low (meaning there aren’t many people selling), then that means prices, including XCN price, will rise.

Compounding Periods

Compounding periods are the number of times you compound interest in one year. Compounding is the process of earning interest on your initial investment, then using that money to earn more interest, and so on. The longer your compounding period, the higher your APY will be because more time has passed for interest to be earned and reinvested in your account.


As you can see, there are many factors that influence the APY of a crypto asset. The most important ones are inflation and supply/demand. You should also be aware that APY is calculated using compound periods, which means each period is added to the previous one before calculating the next one.

An original article about APY In Cryptocurrency: What You Should Know by Purity Muriuki · Published in

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