Understanding APY
⏱️ 4 min read
What is APY in DeFindex?
APY (Annual Percentage Yield) represents the estimated annual return on your investment, expressed as a percentage. In DeFindex, APY reflects how much your deposited assets could grow over a year if current performance continues.
APY vs APR: The Key Difference
APR (Annual Percentage Rate): Simple interest without compounding. If you earn 10% APR, you get exactly 10% on your initial deposit after one year.
APY (Annual Percentage Yield): Includes compound interest. Your earnings are reinvested, so you earn returns on your returns.
DeFindex uses APY because it better reflects actual returns when strategies auto-compound rewards. When a vault harvests and reinvests gains, your shares become worth more over time. APY captures this growth more accurately.
Strategy APY vs Vault APY
Strategy APY: The raw yield generated by an individual strategy (e.g., lending on Blend Capital).
Vault APY: The net yield users receive after vault fees are deducted. This is what depositors actually earn.
A vault with a 10% strategy APY and 20% performance fee would have approximately 8% vault APY. This is because the performance fee is applied to the yield, not the principal:
Example:
You deposit $100
The strategy generates $20 in yield (20% APY)
The manager takes 50% of those gains: $20 × 0.50 = $10
You receive $10 in net yield
Your effective return: $10 / $100 = 10% Vault APY
The formula is: Net Vault APY = Strategy APY × (1 - Performance Fee)
Price Per Share (PPS)
Instead of tracking individual profits, DeFindex uses Price Per Share (PPS) to measure vault performance. When you deposit, you receive shares. As the vault earns yield, each share becomes worth more.
APY is calculated by comparing the PPS now versus the PPS in the past. For technical details and formulas, see Strategies APY.
Why Does APY Vary Between Vaults?
Even vaults using similar strategies can show different APYs. Here's why:
1. Vault Fees
The Vault Manager sets performance fees that reduce net APY. Lower fees mean more returns for depositors.
15%
50%
~7.5%
15%
30%
~10.5%
15%
15%
~12.75%
See Vault Roles for more on how managers configure fees.
2. Rebalancer Decisions
The Rebalance Manager allocates funds across strategies. Smart rebalancing can optimize returns:
Moving funds to higher-yielding strategies
Responding to market conditions
Balancing risk and reward
Poor rebalancing decisions can reduce overall vault performance.
3. Entry Timing
APY reflects historical performance, not future guarantees. DeFindex calculates APY based on Price Per Share (PPS) changes over a recent time window (typically the last 7 days).
This means two vaults with identical configurations created at different times will show different APYs.
How to Interpret APY
What APY Tells You
Recent vault performance based on PPS growth
Net returns after fees
Compounding effect included
What APY Doesn't Tell You
Future guaranteed returns
Risk level of underlying strategies
Liquidity conditions
Common Misconceptions
"APY is a guarantee"
APY is an estimate based on past performance. Market conditions, strategy yields, and other factors can change at any time.
"APY stays constant"
APY changes continuously as market conditions and strategy performance evolve. What you see today may be different tomorrow.
"I can directly compare APYs across platforms"
Different platforms calculate APY differently. Some include fees, some don't. Some use 7-day averages, others use 30-day. Compare within DeFindex for accuracy.
Quick Reference
APY
Annual Percentage Yield: the estimated yearly return including compounding
APR
Annual Percentage Rate: simple interest without compounding
Strategy APY
Raw yield from a strategy before vault fees
Vault APY
Net yield after fees; what depositors actually receive
PPS
Price Per Share: measures how much one vault share is worth
Harvest
Process of claiming and reinvesting strategy rewards
Learn More
Strategies APY — Technical formulas and PPS calculations
Get APY — How to fetch APY programmatically
Vault Roles — Understanding manager, rebalancer, and fee receiver roles
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