Crypto Research

Yearn Finance Comic – Part 3

What is the difference between APR, APY, and ROI? How does that work in Yearn Finance?

Let’s explore.

Table of Content

APR vs. APY

ROI

APR vs. APY vs. ROI

In Conclusion

APR vs. APY 

APR is a profit associated with costs. It is a lending term that works for lenders and against borrowers. Higher APR is bad because it is risky and highly costly.

APY is a profit factor in the compound interest returns. It is also a lending term that works for lenders to predict their returns associated with risks. The higher the yield, the riskier the loan will be.

Both factors are not set in stone, which means they fluctuate based on the market conditions. 20% of APR or APY does not guarantee such returns eventually. 

You can check my previous articles about this topic here

ROI

Image credit: https://docs.yearn.finance/getting-started/guides/how-to-understand-yvault-roi#roi

ROI or Return on Investment is a ratio between the net profit and to cost of investment. ROI reflects the efficiency of the investment. It is a projection factor that evaluates products using their past performance. 

Depending on the length of your investment and strategies, the ROI may vary.

APR vs. APY vs. ROI

Image credit: https://yearn.finance/#/vault/0xd88dBBA3f9c4391Ee46f5FF548f289054db6E51C

APR and APY can only estimate the potential returns. They do not give you a full picture of how you yield your investment. However, ROI gives useful information about the performance of your investment. To do so, you may calculate by yourself here. Luckily, Yearn Finance did it automatically on their platform.

In Conclusion

APR and APY can only provide estimated returns but ROI gives more concrete information about how your investment performed.

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