PAW Documentation

A comprehensive overview of PAW Technologies

APY vs APR

APR vs. APY

Many crypto projects allow users options to earn interest on their investments through staking, validating, or delegating their cryptocurrency to better secure the blockchain network. The interest rewards will often be provided in either Annual Percentage Rate (APR) or Annual Percentage Yield (APY).

What is APR?

Annual Percentage Rate is a calculation of the percentage earned over the span of a year, based on the amount of the principal and the rate offered.

       
  • Calculation of APR: APR is calculated by multiplying the time in years the investment will be held by the rate offered, then multiplying that number by the amount of the principal.
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  • Example: If 100 "X tokens" are staked for an entire year at 10% APR, the interest earned would be 10 "X tokens," provided the stake is held for the entire year without being withdrawn early. If the same 100 "X tokens" are staked for only 3 months instead of the full year, at the same interest rate of 10% APR, the interest earned would be 2.5 "X tokens" (3/12 x 10%).

What is APY?

Annual Percentage Yield is a calculation of compounding interest earned over the span of a year based on the principal, the interest, and the number of compounding periods offered.

       
  • Calculation of APY: APY is calculated by dividing the nominal interest rate by the number of compounding periods per year, then exponentiating that number by the number of compounding periods per year.
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  • Example: If 100 "X tokens" are staked for an entire year at 5% APY, with monthly compounding interest, the monthly interest rate would be 0.417%, and the interest earned would be 5.116 "X tokens," provided the stake is held for the entire year without being withdrawn early. If the same 100 "X tokens" are staked for 2 years instead of 1 year, at the same interest rate of 5% APY, compounded monthly, the interest earned would be 10.494 "X tokens" over that 2-year period.

Details of Calculation:

       
  • APR Calculation Example:        
                 
    1. Principal: 100 "X tokens"
      2.            
    2. APR: 10%
      3.            
    3. Time Held: 1 year
      4.            
    4. Interest = Principal x APR x Time Interest = 100 x 0.10 x 1 = 10 "X tokens"
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