Definition
Borrow APY is a metric that expresses the cost of borrowing crypto as an annual percentage yield, taking into account the effect of compounding interest. It indicates how much a borrower will pay over a year if the current borrowing conditions and compounding pattern remain the same. In many DeFi lending markets, Borrow APY updates frequently as supply and demand for liquidity change.
Unlike a simple Borrowing Rate that may describe interest without compounding, Borrow APY reflects interest being added back to the loan balance at regular intervals. This makes it a more complete measure of the true yearly cost of a variable-rate crypto loan. Borrow APY is typically displayed alongside metrics like APR or Borrow APR to give a fuller picture of borrowing costs.
In Simple Terms
Borrow APY shows how much interest a borrower pays on a crypto loan over a year when interest keeps getting added to the amount owed. It turns the current borrowing conditions into a single yearly percentage that already includes the effect of compounding. While APR or Borrow APR focus on the base rate, Borrow APY shows the effective yearly cost once interest-on-interest is included.