What is APY in cryptocurrencies and how to get the best APYs

What is APY in cryptocurrencies and how to get the best APYs

Putting your money into a savings account or making an investment and earning interest on it is not a new concept. What makes this process interesting in cryptocurrencies is that typically the annual percentage yield (APY) is much higher than those offered by traditional banks. Different exchanges and crypto financial service providers have different cryptos available for staking and also have different APYs. Trying to earn a good APY on your cryptocurrencies might seem easy, but crypto volatility makes this process a high-risk, high-reward process.


Things to Know About Crypto APY

  • Different exchanges and services can offer different APYs on the same token
  • The compounding period will determine how much your APY will return
  • There are multiple ways we can earn good APYs, the most popular of them being lending and staking

What Is Apy in Cryptocurrency?

APY stands for annual percentage yield and takes into account compounding as well as regular interest. What this means is that whenever you earn interest it is periodically added to your investment and the next yield will be calculated by the initial investment + interest added to that investment. This is what differentiates APY from APR which does not take into account compound interest and your yield is only calculated by the initial investment you made. 

APYs in cryptocurrencies are generally higher than those given by traditional banks. The reason behind this is that, unlike stocks, cryptocurrencies suffer from high volatility and the risks associated with them are generally higher than the risks that traditional financial system faces. So to incentivize investors into lending out their tokens or putting them in liquidity and staking pools, crypto financial services offer high APYs. 

But not every cryptocurrency has the same APY and there are several factors that determine the APY of each crypto. The same cryptocurrency might even have different APYs on different exchanges. Let's go over some of the most common reasons which determine the APYs of cryptocurrencies.

Supply & Demand

One of the biggest contributors to APY rates is supply and demand. This is not something unique or unusual since supply and demand drive all crypto and traditional markets. So when there is a big demand for certain cryptos, their APYs also go up.

Let’s take an example. So let’s say that there is a high demand for loans in the form of Bitcoin. This will drive demand for the token up, but since Bitcoin is a scarce token with a limited number of coins in circulation, exchanges and lending platforms will have a hard time providing liquidity for them. To create this liquidity these platforms will raise their APY on Bitcoin to attract new investors.


Compounding period

Another factor that affects the APY rates is the compounding period. APY increases depending on how often compounding takes place. The formula of APY is as follows:

APY = (1 + r/n)^n - 1 

r = annual APR

n = number of compounding periods

Because of this formula, if the compounding takes place quite a few times each year, your APY will see a good increase. For example, if your compounding takes place on a monthly basis, you will earn less compared to if compounding took place daily. 

Minting of new tokens

Another factor that determines how much money you are going to make from your investment is the minting of new tokens. This can be considered the inflation of cryptocurrencies. Every time new tokens get minted on the blockchain the token loses some of its value just like normal currencies would do. Whenever you stake your tokens they are locked for a certain period of time and if inflation was to take place, the amount of APY you earn might not cover the loss in the value of your token. 

To have an example, let's say you staked $10,000 worth of Ethereum with an APY of 4%. At the end of the year, this investment should be worth $10,400 + interest earned from compounding. But let's say Ethereum minted big quantities of new tokens, and it lost some of its value and your initial investment is now worth $9,000 at the end of the year. With the 4% APY, it will come out as $9,360 + compound interest. Once you take out your tokens, you will be left with tokens that are worth less than you started with.

How Can We Earn APY on Cryptocurrencies?

There are a few ways we can earn APY on cryptocurrencies. If you are just long-term holding tokens and don’t use them for anything, you might as well earn some passive income from them. There are many platforms that offer APYs on tokens, each providing different services, and giving your tokens different usage.

Crypto lending

One of the most common and straightforward ways you can earn APY on your crypto is to lend it out. Whenever someone is looking to borrow crypto they visit lending platforms where investors provide their services. 

Whenever someone wants to borrow crypto, they are putting up some of their tokens as collateral and then find a person who is lending out crypto. Next, they discuss the terms of the loan, including APY. When deciding to use these platforms for lending out your tokens to earn interest on them, always check how reputable the platform is. There are two types of lending platforms, decentralized and centralized, and you need to choose if you prefer to have peer-to-peer lending or have a third party involved in your activities.


Provide liquidity

Another famous way investors are earning APYs on their tokens is by providing liquidity to exchanges. Whenever someone uses exchange services to directly swap one cryptocurrency for another, exchanges need liquidity to be able to execute these orders. Because of that, these exchanges and platforms offer high APYs on the most desirable cryptocurrencies in order to attract more investors, so they will be able to complete every order. 

Just like lending platforms, these exchanges can fall into one of two categories. Decentralized exchanges usually offer bigger rewards, but in most cases, these interest rates are paid out in the form of their native token and not the token we provided liquidity for. While centralized exchanges might also give out interest in different tokens, usually they give out APYs in the form of tokens you have provided liquidity for.



This method of earning APYs can only be done using cryptocurrencies that use the Proof-of-Stake protocol. When you are staking your tokens, you are staking them on the blockchain that these tokens are built on. Then these coins are used to validate transactions made on the blockchain.

There are two ways we can do this. We can either stake tokens ourselves or join the staking pool which is operated by someone else and consists of many investors. The decision as to which one you should use will depend on your technical knowledge and how much crypto you want to stake. The more you stake, the higher the returns. Because of this, when you are staking solo, you need a good initial investment to earn good APYs. When joining the staking pool, this pool counts as one big stake, and the rewards it earns get distributed based on how much each investor staked. These staking pools can be set up by individuals as well as big exchanges.


Where to Earn High APYs 

Since there are multiple ways we can earn APYs on our tokens and many platforms which provide services to earn APYs, it might be hard to find the best platform. Here we will list some of the platforms that can offer high APYs.

DeFi Swap

DeFi Swap.png

DeFi Swap is one of the best-decentralized exchanges that gives traders opportunities to trade with cryptocurrencies in a fast manner. Being a decentralized exchange, DeFi Swap does not have an order book and crypto swaps happen directly. To facilitate these swaps, DeFi Swap needs liquidity and offers high APYs to investors who are willing to provide this liquidity.

DeFi Swap has its own DeFi Coin, which is what you receive as a reward. This might not seem good for some investors, but if you like the platform and believe in its success, investing in DeFi Coin will definitely be a good idea. APYs here range from 30% to 75% depending on how long you are going to lock up your tokens.



If you are more interested in lending out your tokens, AQRU is the platform to visit. This is a lending platform that lends crypto to institutions like exchanges and retailers. Here you can stake tokens such as Bitcoin and Ethereum. But what makes this lending platform more interesting is that you can even lend out your stablecoins. This is one of the safest options when it comes to earning APYs on your cryptocurrencies since stablecoins are unlikely to lose their value very fast. 

Compared to DeFi Swap, APYs here are considerably lower and range between 3-14%. But unlike DeFi Swap, you are not locking your tokens for a certain period and can take out your investment whenever you want. This will lower the possibility of losing your investment following price drops, as you are able to exchange your tokens before they lose too much value.



If you want to put your investment in a regulated and centralized exchange, Binance is one of the best choices you can make. What makes Binance a good place to invest in is the sheer number of tokens you can earn APYs on. Binance supports the staking/investing of 115 tokens, each offering different APYs. Another great feature that Binance has is that it offers flexible lock periods for some tokens. If you don’t feel comfortable locking up your tokens for certain periods, you can stake them for however long you want, but APYs are considerably lower in this case.

But this is not all. You can also provide liquidity for Binance. Binance has Binance Convert where traders can convert one token to another with 0 fees. For this, Binance needs liquidity, and it gives investors high APYs when they provide liquidity. Just like DeFi Swap, when providing liquidity for Binance, you receive APYs in the form of their native token BNB.

Things We Learned From This Guide

  • You can earn APYs by providing liquidity, staking, and lending out tokens.
  • Supply and demand are the main determinants when it comes to the APY rate
  • Binance provides multiple ways to earn APYs on your investments

FAQs About APY in Crypto

What does APY mean in crypto staking?

APY stands for “Annual Percentage Yield”. Unlike APR, with APY compounding interest is taken into account and the returns you earn are higher. What this means is that whenever you earn interest, this interest is added to your initial investment and when giving out the next interest it is calculated by adding up the initial investment and the compound interest you already earned.

How do you calculate the APY?

The formula for calculating APY is as follows: APY = (1 + r/n)^n - 1 where r is the annual APR and n is the number of compounding periods. So if APR is 5%, compounded daily, and you are investing $5,000, this is how it will look. 5,000 x (1 + 0.05/365)^365 = 5,256.34

What is the best way to earn APY on crypto?

This will depend on the crypto you are investing in. But usually, the best way to earn high APY on your crypto is by providing liquidity for decentralized exchanges. These exchanges usually pay the highest APYs, but you will most likely receive APY rewards in the form of different cryptocurrencies.