What is the difference between APR and APY?
Last updated
Last updated
If you’re new to DeFi, you’ve probably seen terms like APR and APY when looking at lending, borrowing or staking rates. They both tell you how much you can earn (or owe) over a year, but they work a little differently.
APR is the simple interest you earn or pay in a year.
It doesn’t include compounding, which means it only counts the interest on your original deposit.
For example: If you deposit $1,000 at 10% APR, you’ll earn $100 over the year. That’s it - no extra interest on top of the $100.
APY includes compounding - which means it also counts the interest you earn on your interest.
It assumes you keep reinvesting whatever you earn.
For example: If you deposit $1,000 at a 10% APY, you’ll earn a bit more than $100 by the end of the year, because each time you earn interest, that amount also starts earning interest.
On Suilend, interest is paid out per second, and users decide when to claim or reinvest it. Showing APR:
Keeps things simple and clear
Helps you compare rates easily across different platforms
Avoids giving a misleading number (since not everyone compounds)
The supply and borrow APRs on Suilend are determined algorithmically based on utilization - the ratio of borrowed assets to total supplied assets in a lending pool. As a supplier, your interest is directly tied to how much demand there is to borrow the asset you’ve deposited, using the formula:
Supply APR = Borrow APR × Utilization × (1 - Interest Rate Spread)
As more of an asset is borrowed (higher utilization), the borrow rate increases.
This encourages supply and discourages excessive borrowing.
The more that’s borrowed, the higher the utilization, and the more suppliers earn.
Interest Rate Spread is an amount of interest set aside for the protocol, 20% in Suilend's case.
