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How Are Returns Calculated in DeFi Yield Farming?

The common difference between both APY and APR is that APY accounts the effect of compounding while APR does not. Compounding refers to reinvestment profits to generate more returns.

[b]Annual Percentage Yield (APY)[/b]
The annual rate of return charged on borrowers and paid to providers subsequently refers to Annual Percentage Yield.

[b]Annual Percentage Rate (APR)[/b]
The annual rate of return imposed on borrowers and paid to the investors is termed as Annual Percentage Rate. Since APR and APY come from legacy markets, DeFi should find its own metrics for the calculation of returns in yield farming.

This is how the returns are calculated in the DeFi Yield Farming.

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