The difference is compounding.
APR or Annual Percentage Rate does not take compounding into account.
APY or Annual Percentage Yield includes the effects of compounding.
1% interest daily without compounding is 365% APR or a 4.65x
1% interest daily with compounding is 3678% APY or a 37.78x
Compound interest is often called the eighth wonder of the world.
Make it work for you. Autocompounders like @beefyfinance are a great way to do this.
Many crypto protocols will pay interest every few hours. (Sometimes it can even be every 15 minutes!) Obviously, it’s not practical to manually re-deposit the interest every 15 mins.
This is why autocompounders are so valuable
Harvesting the interest and re-depositing is also very expensive on the ETH network due to the gas fees This is why such compounding strategies are much easier on MATIC / FTM / AVAX / LUNA.
Here’s a guide on how to bridge your assets to other chains for cheap.
DeFi 2.0 rebase protocols like $OHM$TIME$HEC$KLIMA also use compounding to give you these crazy APYs. 80,000 APY on $TIME is only about 675% APR or 1.85% daily if it wasn’t compounded. Here’s the math behind the #DeFi 2.0 protocols: