Why Farm Dashboards Display Both APR and APY
Yield farms rarely give you a choice between APR and APY as a payment method. Instead, dashboards compute both from the same underlying reward stream. The APR is the raw rate: if a pool pays 20% APR, one token deposited for a year earns 0.20 tokens in rewards, assuming no price changes and no compounding. The APY is derived from that APR by assuming a compounding frequency—often every block, every hour, or every day—and applying the formula:APY = (1 + APR / n)^n – 1, where n is the number of compounding periods per year.
The more frequent the compounding, the higher the APY climbs above the APR. On many dashboards, you will see APY computed as if rewards are compounded every second or every block, which produces a number that can be 2–3x the APR. That is not a lie, but it is a projection, not a promise.Where the compounding actually happens
In practice, compounding only occurs if you manually claim rewards and re-deposit them, or if the farm uses an auto-compounding vault. Some dashboards assume auto-compounding even when the vault does not offer it. Always check whether the farm has a “compounder” or “autostake” feature. If it does not, the APY shown is a theoretical maximum that you would only reach by actively harvesting and reinvesting.How to read the numbers side by side
A quick rule: compare APR across farms when you plan to claim rewards and use them elsewhere. Compare APY when you intend to leave everything in the vault. If two farms offer the same APR, the one with a higher APY is compounding more frequently—which is generally better, but only if the compounding is automatic and free.The Real-World Variables That Break the APR/APY Equation
Farm dashboards calculate APR and APY from current reward rates, but those rates are not fixed. The numbers change with every deposit, withdrawal, and price movement. A pool that shows 50% APY today might show 15% next week if more liquidity enters or if the reward emission schedule halves. This is why APY and APR are snapshots, not contracts.Impermanent loss and token price volatility
In liquidity pool farms, your position is exposed to impermanent loss. If one token in the pair pumps or dumps, your deposited value can shrink even while rewards accumulate. A high APY can be entirely offset by a 10% drop in the underlying token price. The dashboard never shows this risk next to the APY figure.Reward token quality
Many farms pay rewards in their own governance token. The APY is calculated using the current market price of that token. If the token price falls after you deposit, your effective yield drops even though the dashboard still displays the old APY. Always check what token the rewards are paid in and whether it has real liquidity and a track record.Comparing Farms Honestly: A Practical Checklist
Before you choose between two farms based on APY, run through this list:- Check the reward token—is it a blue-chip asset like ETH or a farm’s own token with thin liquidity?
- Look at the compounding method—is it auto-compounded by the protocol, or do you have to claim and re-deposit manually?
- Review the fee schedule—some auto-compounders charge a performance fee on every harvest, which lowers the effective APY.
- Check the TVL trend—a rapidly shrinking total value locked often indicates the APY is about to drop.