Definition
Annual Percentage Yield. The real rate of return on an investment over one year, including the effect of compound interest. In DeFi, APY reflects the annualized return from staking, lending, or liquidity provision.
Why It Matters
APY is the standard measure for comparing DeFi yields. Extremely high APYs (1,000%+) are almost always unsustainable and carry substantial risk of collapse.
Example
Staking ETH on Lido at 4% APY means $10,000 invested would theoretically grow to $10,400 after one year, assuming ETH price stays constant.
Related Terms
Staking
Yield Farming
DeFi
Liquidity Pool