DeFi APY Calculator
Decentralized finance (DeFi) protocols advertise returns as either APR (simple rate) or APY (compounded rate). Understanding the difference is critical: a 100% APR compounded daily is approximately 171% APY. This calculator converts APR to APY at any compounding frequency, and then estimates your earnings in USD for a given principal and time period.
APR to APY conversion formula
APY = (1 + APR / n)^n - 1 (periodic compounding)
APY = e^APR - 1 (continuous compounding)
Earnings = Principal x (1 + APY)^(days/365) - Principal
This formula is derived from the standard compound interest model. The continuous compounding formula uses Euler's number (e = 2.71828...) as the base, representing the mathematical limit of compounding frequency.
DeFi yield farming considerations
- High APY in DeFi often reflects high token emission rates that dilute over time as more capital enters the protocol.
- Smart contract risk: bugs or exploits in DeFi protocols can result in total loss of deposited funds.
- Impermanent loss in AMM pools can offset positive APY; use the Impermanent Loss Calculator to quantify this.
- Gas fees on Ethereum can significantly reduce net yield for small positions; calculate fees before depositing.
- Compounding your rewards manually (claiming and reinvesting) on a protocol that does not auto-compound adds transaction costs that reduce effective yield.
DeFi APY: frequently asked questions
What is the difference between APR and APY in DeFi?
APR (Annual Percentage Rate) is the simple interest rate without compounding. APY (Annual Percentage Yield) accounts for compounding over the year. If a DeFi protocol offers 50% APR compounded daily, the APY is (1 + 0.50/365)^365 - 1, which equals approximately 64.82%. The more frequently rewards compound, the greater the gap between APR and APY.
How do I convert APR to APY?
APY = (1 + APR / n)^n - 1, where n is the number of compounding periods per year. For daily compounding (n = 365), APY = (1 + APR/365)^365 - 1. For continuous compounding, APY = e^APR - 1, where e is Euler's number (approximately 2.71828).
What is impermanent loss in DeFi liquidity pools?
Impermanent loss occurs when the price ratio of two assets in a liquidity pool changes from when you deposited them. The automated market maker (AMM) rebalances the pool, which can leave you with less total value than if you had simply held both assets. Use the Impermanent Loss Calculator for a separate estimate of this risk.
Is DeFi yield taxable in the United States?
Yes. The IRS treats DeFi yield (interest, liquidity mining rewards, governance token distributions) as ordinary income at fair market value when received, based on general principles in IRS Notice 2014-21 and subsequent guidance. Capital gains tax may also apply when you sell reward tokens.
What is a realistic DeFi APY?
Stable, blue-chip DeFi protocols (Aave, Compound) have historically offered 1-10% APY on major assets like USDC and ETH. Higher APY (20-100%+) is possible with newer protocols or incentive programs, but these carry significantly higher smart contract risk, token price risk, and sustainability risk.
Official sources
- FDIC explanation of APY vs APR (Truth in Savings Act, 12 CFR Part 230): fdic.gov/regulations/laws/rules/6500-3940.html.
- NIST Digital Library of Mathematical Functions (Exponential function): dlmf.nist.gov/4.2.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.