School of PembRock
  • 🔥Welcome to PembRock Finance
  • ‼️Risks
    • Risks for Farmers
    • Risks for Lenders
  • What is Leveraged Yield Farming?
  • About PembRock
    • How PembRock Finance Works
    • Ref Finance integration
    • User Story: Lender
    • User Story: Farmer
    • Audits
    • Borrowing Interest Rate on PembRock
    • Parameters & Key Figures
  • Roadmap
  • 💰Tokenomics
  • ❔FAQ
  • Quick Links
  • Education
    • How-To Guides
      • How to create a NEAR wallet
      • Lending: Step-by-step guide
      • Farming: Step-by-step guide
      • How to buy PEM
      • How to Stake PEM & Join DAO
      • How to claim $PEM token on Meta Yield
    • NEAR Protocol Introduction
    • General DeFi Investing
      • What Is DeFi?
      • CEX vs. DEX
      • How to Become a Liquidity Provider (LP)
      • Understanding Impermanent Loss
      • Token Correlation
      • The Importance of Diversification
    • Leveraged Yield Farming Education
      • Farming roles explained
      • Providing Liquidity to DEXes — Key Benefits
      • Undercollateralization: The Key to Leveraging
      • Yield Farming Myths Busted!
      • Key Leveraged Farming Strategies
      • How to Avoid Getting Rekt in Leveraged Yield Farming
      • Calculating Leveraged Yield Farming Returns
      • The Power of Hedged Positions
      • The Big Short—PembRock Style
      • Yield Farming with Leverage: How to Maximize Returns
      • Useful Links & Tools
    • Yield Farming Glossary
  • Legal notes
    • PembRock Finance Cookies Policy
  • pembrock.finance
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On this page
  • The difference between APY and APR
  • How are crypto project rates calculated?
  • Farming with leverage for great APY

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  1. Education
  2. Leveraged Yield Farming Education

Calculating Leveraged Yield Farming Returns

Want to know how much you are likely to earn from your farming position? With all the different calculations it can be difficult to tell, and in crypto, due to the volatile nature of the market, returns can change quickly due to rises and falls in the prices of tokens.

Despite this, it’s still worth understanding how your returns are calculated, and it will give you an understanding of what you’re likely to receive.

The difference between APY and APR

Both APY and APR are used to calculate the annual rate that you will earn if you have invested money, or that you will owe if you have borrowed money.

APY = Annual percentage yield. This calculation takes into account compound interest. This means that the longer you leave your money invested, the greater returns you get, due to the fact that your profits are constantly added to your deposit, itself gaining interest.

Knowing how often a position is compounded is very important as it shows you how the APY is reached.

APR = Annual percentage rate. This calculation does not take into account compound interest and gives a flat rate of return that does not change.

How are crypto project rates calculated?

Crypto projects will usually calculate your return in terms of APY, and PembRock is no exception. With our auto-reinvest feature, farming rewards are compounded.

So how does this look in a real-life example?

Firstly, if farming a token pair advertises ≈ 140% APY, things aren’t as simple as dividing that 140% by 12 to calculate your monthly earnings.

For example, a 140% APY may represent a 90.6% interest rate that is compounded monthly, or an 87.65% interest rate compounded daily.

Principle investment of $1000 — APR 87.65%
Difference between APR and APY
Principle investment of $1000 — APY 140% (87.65% interest rate)

An APR of 87.65% with a $1000 investment held for one year would deliver a total of $1,876.5. Each day would net you a flat $2.40 in profit.

With the same principle investment, an APY of 140% (compounded daily) would also net you $2.40 in profit on the first day, but this would then be added to your $1000, meaning the next day you would earn 87.65% on $1002.40, and so on.

By the end of the year, your compounding interest will deliver you $2400, a difference of $523.5.

Farming with leverage for great APY

As you can see, compounding interest is a powerful tool. While gains may start relatively small, earning interest on top of your interest can lead to great rewards if you keep your investment in for a decent period.

While yield farming is associated with short-term gains, we aim to give you a user-friendly secure platform along with educational tools, so you can profit over the long term!

In the meantime, you can play around with two cool tools for looking at the difference between APR and APY and seeing the difference between returns using different interest rates, compounding periods, and other parameters.

PreviousHow to Avoid Getting Rekt in Leveraged Yield FarmingNextThe Power of Hedged Positions

Last updated 2 years ago

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