APR stands for annual percentage rate.
💎The formula for APR:
APR = the periodic interest rate*the number of periods in a year in which it was applied.
APY stands for annual percentage yield.
💎The formula for APY:
APY = (1 + r/n )n — 1, where “r” is the stated annual interest rate and “n” is the number of compounding periods each year.
📌The APR and APY match if the interest is applied only once a year, but this rarely happens.
What if to apply the interest once a month? Suppose the APR is 5%. These 5% will be split into 12 periods, which is 0.42% per month. That is, every month, you will receive 0.42% at your new balance. For example, if you invested $10000, then in 12 months and given monthly interest accrual, you will have $10512, which is 5.12% APY.
🔥The more often the interest is accrued, the higher the APY will be. Therefore, in such cases, the APY will be higher than the APR.
Choosing an asset for investment, pay attention to assets’ APY rates. Compare APY of one asset with APY of another asset and the same regarding APR.
These indicators are relevant to cryptocurrency staking. APR shows the accrued interest, APY — the yield given that you stake your coins for a year.
🔺Note that APR and APY are volatile against the same cryptocurrency and represent rough predictions in decentralized finance. This is due to the high level of competition in the market. So it is better to focus on weekly or daily yield and percentage rates.
APR and APY are inherited from the traditional market. Perhaps soon there will be more universal metrics for calculating yield appropriate to the peculiarities of decentralized markets — we will keep an eye out.
📍However, awareness of APR and APY alone is not enough to invest in DeFi efficiently.
What are other metrics worth attention?
🚀Total Value Locked (TVL) — the total amount of funds locked on the DeFi protocol. This metric stands for all liquidity in the liquidity pools of a particular marketplace. TVL shows the interest of market participants in DeFi and helps compare the share of different protocols and find an underestimated one.
The Price/Sales ratio helps to identify an undervalued or overvalued asset. The ratio is calculated as follows: the market cap of the protocol is divided by its income. The lower the ratio, the more undervalued the asset.
🎉Token rebalancing on exchanges — significant changes in the balance of tokens on exchanges often indicate high volatility.
- Non-speculative use — understanding what a token is used for is crucial to determine its value. If a token is used only for speculative purposes, its price will not be stable, and it does not carry value. To determine the token’s purpose, it is necessary to analyze the transactions carried out with it.
- Inflation Rate — inflation is inevitable and affects income level. However, there is no understanding of high or low inflation levels, so this metric should be considered in the context of other parameters.
🚨Where to see the statistics on tokens metrics?
CoinMarketCap https://coinmarketcap.com/ provides detailed statistics on cryptocurrencies in terms of DeFi and blockchains and for the cryptocurrency market as a whole. You will find the following information:
🔹Price and price change
🔹Maximum and minimum prices for all time, for yesterday, for 7 days, for 30 days, for 90 days, and for 1 year
🔹ROI — the approximate return on investment if purchased at the time of launch (or earliest known price).
Also, there are charts on price change, market capitalization, and trading volume.
Where to see the statistics on the sites? Take the Pancakeswap decentralized exchange. Let’s say you want to become a liquidity provider. The exchange offers pairs of tokens:
🙌Here you can see the information on each pair
- Total Liquidity
- Reward fees
Other platforms also provide the same data.
The yield of crypto assets is a complex metric that should be analyzed using various inputs. Only a detailed analysis will help you make the right decision on choosing an asset for investment.
🔵The concept of gas first appeared on the Ethereum network. Any transaction and action in the Ethereum blockchain involve a commission charged for rewarding miners. The network miners confirm transactions and decide which of them will be a part of the new block in the network. The transaction fee is calculated in gas and paid in Ethereum.