Definition
APR, short for Annual Percentage Rate, is a metric that expresses the yearly interest rate applied to a crypto asset without taking compounding into account. In decentralized finance, it is commonly used to describe how much interest is paid or earned over a year on activities like lending, borrowing, or providing liquidity. APR is presented as a percentage and assumes that any interest received is not reinvested during the year. It provides a straightforward way to compare the basic cost of borrowing or the basic return on capital across different DeFi opportunities.
Unlike more complex measures that factor in reinvested returns, APR focuses only on the simple rate applied over a one-year period. This makes it easier to understand at a glance, especially for users who want a clear view of the nominal rate before considering compounding. In many DeFi platforms, APR is displayed alongside related metrics such as APY, which incorporates the effect of reinvesting interest. Together, these metrics help describe the potential performance of on-chain financial products in a standardized way.
In Simple Terms
APR is the basic yearly interest rate number shown for a crypto product, without adding in extra earnings from repeatedly reinvesting rewards. It tells how much is paid or earned in one year as a flat percentage of the starting amount. When a DeFi platform lists an APR, it is giving a simple snapshot of the rate before any compounding is considered. APY, a related metric, builds on this by showing what the return would look like if interest were regularly added back into the balance.