APY or APR?
Lot of people tend to confuse with APY and APR. Some, tend to use them both with conflicting ideas whereas others ignore the difference altogether. However, it is important to identify the difference between APY and APR to optimize returns.
APR (Annual Percentage Rate) is the yearly interest after deducting the fees. APR is the most simple it can get. Profits are not reinvested therefore this does not include compounding effects. If you were to invest $100 with 20% APR, you would make $20 in profit after an year.
APY on the other hand, is the annual percentage yield offered from a particular investment. This takes into account compound interest, giving you an accurate idea of your returns compared to simple interest.
Lets assume that you reinvest your profits regularly. Then, you will compound your interest (Interest on interest). This calculated over a year gives you the APY (Annual Percentage Yield). The more often you compound your interest, the greater the difference between APR and APY.
A daily yield of 1-2% can reap you large APYs at the end of the day. This is because your liquidity pool rewards are getting constantly farmed and reinvested, which leads to interest compounds.