Yield Farming: APR vs. APY and the Cost of Compounding
Use worked calculations to separate simple rates, compounding assumptions, token incentives, and a strategy’s net outcome.
Category / DeFi Field Notes
Lending & yield.
Separate the obligation created by borrowing from the estimate displayed beside a yield strategy. This collection explains collateral buffers, interest, compounding, and the costs that can change a headline number. Every calculation uses explicitly hypothetical inputs rather than a live market quote.
Use the lending guide to understand the relationship between collateral, debt, and liquidation rules. Then read the APR and APY guide to test how timing, token prices, and fees alter a return calculation. A useful worksheet states which quantities change, which remain fixed, and what happens at exit. Treat uncertainty about current parameters or methodology as a reason for more research, not as a blank to fill with an optimistic assumption.
Use the linked guides below for worked explanations, source references, and connected reading. Keep the glossary open when a term needs a definition, and review the limitations of educational material before applying an example to a real position.
