DeFi Yield Farming APR

Yield Farming APR & APY in DeFi

When you deposit tokens into a smart-contract pool (Uniswap, SushiSwap, Curve, PancakeSwap), you become a liquidity provider and the pool pays you for it. That headline number you see is usually one of two things. APR is the simple, non-compounded rate; APY assumes you keep reinvesting. The math behind both is APR = (daily_reward_USD × 365) / deposit_USD and APY = (1 + APR/n)^n − 1. Here n counts how many times a year you compound, which for daily reinvesting means n = 365.

Your income from farming comes from two places: the trading fees, paid out in pool tokens, and the farming rewards, which arrive as the protocol’s own governance token (SUSHI, CAKE, CRV, that sort of thing). The model really took off during the 2020–2022 “DeFi summer,” once Compound started handing out COMP and Yearn rolled out auto-compounding vaults. For a brief window, advertised APYs ran into four digits.

Applications

People use this to weigh pools against each other across chains and protocols, to work out how long it takes to break even on Ethereum mainnet gas, to decide the right moment to harvest and re-stake, and to size a position so that impermanent loss stays under the fee income they expect to earn.

FAQ

What’s the difference between APR and APY? APR leaves compounding out of the picture entirely. APY assumes you periodically claim your rewards and put them back to work. Take a 100% APR and claim it daily and it works out to roughly 171% APY.

What is impermanent loss? When the price ratio between your two pooled tokens drifts away from the ratio you deposited at, the AMM keeps rebalancing in a way that costs you. A 2× price move on one side runs about 5.7% IL; a 5× move is closer to 25%.

Are these APRs safe? No. A smart-contract exploit, a rug pull, oracle manipulation, a reward token that craters — any of these can leave you with total loss. Deposit only what you can afford to lose, and lean toward audited blue-chip protocols.