While some traders prefer to sit back, HODL, and enjoy when their asset’s price rises, others actively put their coins to work, whether through staking, lending, or other yield-generating activities, to earn extra returns. One way to measure this type of return on investment is the Annual Percentage Yield (APY) instrument. But what does it mean, and how is it calculated?
What is APY in crypto?
Originating from traditional finance, APY represents the percentage of an initial investment that an investor earns by the end of the financial year through market activities. APY accounts for compound interest, meaning interest is earned not only on the original amount but also on previously accumulated interest, which is continuously added to the initial sum for further growth.
But what does what does APY mean in crypto? Basically, it works similarly, but the interest is usually paid in the cryptocurrency that you staked or lent. This rate varies depending on fees, token prices, compounding frequency, and the type of asset involved. Different platforms offer varying APYs, making it crucial to compare options before investing.
How to calculate APY
The standard way of calculating APY is with this formula:
where:
r = annual interest rate
n = number of compounding periods per year
The more frequent the compounding, the higher the effective APY, and sometimes protocols may display the APR, or Annual Percentage Rate, instead of APY.
The difference between APY and APR
While APY includes compound interest, APR represents simple interest, showing the base percentage of return without factoring in reinvested earnings. APR is often used for lending and borrowing rates, whereas APY is more relevant for staking and yield farming.
How to earn high APY in crypto
Earning passive income in crypto involves multiple strategies, each with its own benefits and risks. we’ll talk about some of them in detail down below:
Crypto Staking
This involves locking assets in a Proof-of-Stake (PoS) network to validate transactions and earn rewards. Staking rewards are distributed periodically, with earnings influenced by network conditions, the amount staked, and validator performance.
One example is Jito, Solana’s first liquid staking platform, which distributes MEV (Maximum Extractable Value) rewards to holders. The Jito Stake Pool allows users to stake SOL in exchange for JitoSOL, a liquid staking token that earns a combination of staking and MEV rewards. These rewards are redistributed to the stake pool as extra APY. As of February 13, the date this material was prepared, the APY was 8.88%.
Providing Liquidity
Traders can supply token pairs to decentralized exchanges, essentially acting as liquidity providers to facilitate trades and swaps for other users. In return, they earn a share of trading fees, additional tokens, and other incentives. Annual Percentage Yield is key in determining how much these rewards can accumulate over a year.
For instance, on SushiSwap, users can stake SUSHI for xSUSHI to earn a share of the protocol’s trading fees. The current APY is around 5.85%.
Crypto Lending
Investors can lend their digital assets through CeFi or DeFi platforms, earning interest over time. Returns depend on borrower demand, platform-specific rates, and the overall volatility of the crypto market. Popular lending platforms include DeFi platforms like Aave, which rely on smart contracts to automate the lending process and operate across Ethereum and 12+ networks.
Yield farming
Yield farming offers an alternative method for earning returns on digital assets by allocating them to decentralized finance protocols. Typically, participants receive rewards in the form of the platform’s native governance tokens, which can be expressed as an annual percentage yield. This system is designed to encourage engagement with DeFi platforms and compensate users for providing liquidity, a vital component for the smooth operation of these ecosystems. Popular yield farming platforms include Curve or yearn.finance.
How to choose a crypto yield program with APY
With so many crypto yield programs out there, how do you pick the right one? It’s not just about chasing the highest APY — there are several important factors to consider before locking in your assets. Let’s break them down step by step.
1. APY
Crypto APY is variable and depends on supply, demand, and the specific project. High APYs may seem attractive but aren’t always sustainable, and some platforms offer unrealistic rates that drop over time. Always research how the APY is calculated and assess its sustainability before investing.
2. Fees
Look into platform fees — these can include deposit and withdrawal fees, transaction costs, or performance fees. High fees can eat into your profits, so make sure the numbers add up.
3. Entrance barriers
Some programs have minimum deposit requirements or require you to use specific tokens. If you’re just starting out, a low-barrier platform with flexible deposit options might be a better fit.
4. How you earn interest
Understanding where the yield comes from is crucial. Are you earning through lending, staking, liquidity mining, or a mix? Each method carries different risks and potential rewards.
5. Lock-up periods
Some platforms require you to lock your assets for weeks or months before you can withdraw. If you need access to your funds at any time, look for flexible options without long lock-up periods.
6. Supported assets
Not all platforms support every token. If you’re holding specific cryptocurrencies, make sure the program offers yield-earning opportunities for them.
7. Compounding periods
The more frequently interest is compounded, the greater the impact on APY. Just like with traditional bank accounts, it’s important to check how often earnings are reinvested. Generally, daily or weekly compounding yields better returns compared to annual compounding.
Top aggregators to compare crypto APY in 2025
Using an aggregator can help you find the best APY across different platforms by comparing APYs, TVLs, and other important criteria before making a decision. Here’s a short list of top aggregators that can help you compare APYs:
- DeFiLlama
Offers Yield Rankings that track over 16,600 pools across 457 protocols on 100 chains. Users can search for specific tokens and sort results by APY to find the best opportunities.
Yield ranking dashboard. Source: defillama.com
- APY.Vision
A specialized tool designed for liquidity providers. It focuses on tracking the performance of liquidity pools across multiple DeFi protocols, offering real-time insights into metrics like historical APY, impermanent loss, and farming rewards.
- CoinGecko Earn
A user-friendly aggregator that compiles staking and lending APY from major platforms. It simplifies APY comparison for various assets and provides a clear overview of potential returns across DeFi and CeFi options.
Final thoughts
APY is a powerful metric for evaluating crypto yield opportunities, but it’s not the only factor to consider. Risks like platform security, token volatility, and lock-up periods must also be weighed. Whether you choose staking, lending, or liquidity provision, thorough research and due diligence are essential to maximize returns while minimizing risks. Always remember: higher APYs often come with higher risks, so invest wisely.
FAQ
What is APY in crypto?
APY (Annual Percentage Yield) is the percentage of an initial investment that an investor earns by the end of the financial year through market activities. APY accounts for compound interest, meaning interest is earned not only on the original amount but also on previously accumulated interest, which is continuously added to the initial sum for further growth.