Annual Percentage Rate (APR): APR represents the annual interest rate applied to crypto assets lent out on investment platforms or cryptocurrency exchanges. Unlike Annual Percentage Yield (APY), APR does not include compound interest and is quoted as a fixed yearly rate. This rate determines the monetary reward or value earned by investors for making their crypto tokens available for loans, factoring in the interest rates and any applicable fees borrowers must pay. In the context of crypto lending, the APR is applied pro-rata for periods less than a year.
For example, a six-month investment would yield half the annual interest rate on the principal. There are generally two types of crypto loans offered by exchanges: fixed lending, akin to a bank’s certificate of deposit with a locked-in rate for a set duration, and flexible lending, similar to a savings account with variable withdrawal options and typically lower returns. Investors should be aware that the volatile nature of cryptocurrencies can affect the actual interest earned, making APR a crucial factor in evaluating the potential returns from crypto lending activities.