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What is the difference between interest and APY in the context of cryptocurrency?

avatarConstantin NoelMar 21, 2022 · 3 years ago1 answers

Can you explain the distinction between interest and APY when it comes to cryptocurrency? How are they related and what do they mean in the context of digital currencies?

What is the difference between interest and APY in the context of cryptocurrency?
Cryptocurrency
Interest
APY

1 answers

  • avatarMar 21, 2022 · 3 years ago
    Interest and APY are crucial concepts for anyone involved in the cryptocurrency space. Interest refers to the amount of money you earn on your digital assets, while APY takes into account the compounding effect of earning interest over a year. In simpler terms, interest is the base rate of return, while APY reflects the overall growth rate of your investment. It's important to note that APY can be higher than the interest rate due to compounding. For example, if you have a 10% interest rate with daily compounding, the APY will be slightly higher than 10%. This compounding effect can significantly boost your earnings over time, making APY a valuable metric to consider when evaluating investment opportunities in the cryptocurrency market.

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