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Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the interest rate and any associated fee that an investor can earn on their investments and assets in a year expressed as a percentage.[2][1] It is the measurement of yields generated by protocols, centralized digital asset lending platforms, and other crypto investment platforms. If a crypto lending platform has an APR of 10%, that means crypto investors can earn 10% on their crypto investments each year.[7]

APR Calculation

To calculate APR, the principal amount of the investment, the interest rate, and the duration of time in years the investment is held must be established. APR is calculated as follows [6]:

  • APR = ((total interest paid + fees)/principal)/term × 100%

Since the APR is an annualized rate, prorated interest will be charged if an investment or loan is held for a shorter period. For instance, a six-month investment with a 5% APR will yield only 2.5% of the principal amount.

It is important to note that APR does not take into account compounding interest. Compounding interest is earned in the . APR is often confused with APY or annual percentage yield. APY is a measure of the total return on an investment, including interest and compounding interest. APR does not take into account compounding interest, so APY will always be higher than APR.

Earning APR

Lending

APR lending is a type of lending where the interest rate is calculated as a percentage of the principal amount borrowed, plus any fees associated with the loan. APR lending is used for short-term loans, such as crypto-backed loans or margin trading loans. APR lending is a convenient way to borrow crypto, but it is not without risks as it typically has high interest rates, and may also include other fees, such as late payment fees or origination fees.[9]

Staking

in APR is a way to earn interest on crypto assets by participating in the consensus mechanism. In staking, assets are locked up while the investor verifies transactions on the . In return, rewards paid out as interest are granted. The APR for staking crypto varies depending on the and the provider.

Yield Farming

is a more complex way to earn APR in crypto, as it involves depositing crypto assets into a and earning rewards from the fees that are generated by the pool. [3][4] The APR for yield farming varies depending on the or protocol, the crypto assets being farmed, and the amount of liquidity being provided.

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Annual Percentage Rate (APR)

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December 14, 2023

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