Definition
Borrow APR is a quoted annual percentage rate that represents the cost of borrowing assets in a decentralized finance lending protocol. It expresses, on a yearly basis, how much interest a borrower is expected to pay on the principal amount, without accounting for interest-on-interest effects. In DeFi environments such as lending pools, this rate is typically variable and adjusts based on supply and demand for the specific asset. Borrow APR is distinct from broader yield metrics because it focuses solely on the borrower’s interest obligation, not on incentives or rewards.
In protocols like Aave and Compound, Borrow APR is a core parameter that defines the baseline borrowing cost for each supported asset. It is usually displayed per asset and can differ significantly across markets within the same DeFi ecosystem. While some interfaces may also show APY or additional reward yields, Borrow APR isolates the pure interest rate component. This makes it a fundamental concept for understanding the pricing of credit in on-chain lending pools.
Context and Usage
Borrow APR is central to how DeFi lending markets allocate capital between lenders and borrowers. It is mathematically linked to the rate paid to liquidity providers in a lending pool, with the protocol’s design determining how interest is split between depositors and any reserve mechanisms. Because it is expressed on an annual basis, Borrow APR allows comparison of borrowing costs across different DeFi platforms and assets, even when interest accrues on a block-by-block or per-second basis.
In the broader DeFi landscape, Borrow APR influences strategies that involve leverage, collateralized borrowing, or yield farming built on top of lending pools. A higher Borrow APR indicates more expensive debt, which can affect the net returns of complex strategies that combine borrowing with other on-chain activities. Conversely, lower Borrow APR can signal abundant liquidity or reduced demand for borrowing that particular asset. As a conceptual metric, Borrow APR provides a standardized way to interpret the cost side of on-chain credit markets.