What are APR and APY? What does impermanent loss mean in crypto? The world of crypto is full of jargon and terminologies, in this video, we're going to break it down and explain it to you!
What is APY?
APY, short for annual percentage yield, measures the rate of return when users deposit their funds into different lending and yield farming protocols. APY includes the effects of compound interest, which can transform low daily or hourly returns into massive amounts over time. Since APY reflects the return on investment over a year, you should only expect to receive the advertised rates if your funds are deposited over this time horizon. Returns may also vary at any moment due to a multitude of factors such as token price and additional token incentives.
What is APR?
APR, or annual percentage rate, can be regarded as simple interest, where the effects of compounding are not included. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment.
What is impermanent loss?
Impermanent loss is incurred when liquidity providers receive different amounts of assets upon withdrawal, compared to when they first deposited them into a liquidity pool on an automated market maker (AMM) such as Uniswap or Sushiswap. This is due to changes in token price, which affects the composition of the liquidity pool, resulting in you having slightly less or more of a particular token.
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Timestamps
00:00 Intro
00:34 What is APY?
02:30 What is APR?
03:10 APY vs APR
04:03 What is Impermanent Loss?
06:34 Final Thoughts
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