📈APR vs APY

Why the protocol quotes APR, and how to compare rates across venues

APR (Annual Percentage Rate) is simple interest — the periodic rate scaled to a year, ignoring compounding. APY (Annual Percentage Yield) is the effective annual return including compounding:

$$APY = \left(1 + \frac{APR}{n}\right)^{n} - 1 \qquad (n = \text{compounding periods per year})$$

Why Secured Finance quotes APR

• Fixed-income convention — bond markets quote simple rates; participants from traditional finance expect APR.

• Nothing to compound — a Zero-Coupon bond has exactly two cash flows. There are no interim payments to reinvest, so a compounding assumption would be fiction.

• Exact by construction — buy at 98.04, redeem at 100: your return is the discount. The APR label just annualizes it (see Zero-Coupon Bonds for the formulas).

Most variable-rate DeFi protocols quote APY because their rates float and compound continuously — the APY figure assumes today's rate holds for 365 days, which it never does. When comparing rates across venues, convert to a common basis first.

The difference in numbers

Bob invests 100 USD at "10%" for 6 months:

• 10% APR → 100 × (1 + 0.10 × 0.5) = 105.00

• 10% APY (compounded semi-annually) → equivalent APR is lower: 100 × (1.10)^0.5 ≈ 104.88

The same nominal "10%" differs by how compounding is counted. At 12% nominal for one year:

Compounding	Effective APY
Annual	12.00%
Quarterly	12.55%
Monthly	12.68%
Daily	12.75%

Converting for comparison

• APR → APY: APY = (1 + APR/n)^n − 1

• APY → APR: APR = n × ((1 + APY)^(1/n) − 1)

When comparing a Secured Finance fixed APR with a variable APY elsewhere, remember the fixed rate is guaranteed to maturity, while the APY is an extrapolation of a moment's rate.

Related

• Zero-Coupon Bonds — price → APR math used by the app

• Fixed Maturity & Auto-Roll — quarterly reinvestment via Auto-Roll