## APR in Crypto Investments: Why It's Not Just a "Nice Percentage"

When you see offers like "earn 15% APR on staking" or "loan at 8% per annum," your first reaction is — that sounds good. But what is really behind this number? **APR (Annual Percentage Rate)** — an annual interest rate, which in cryptocurrencies works quite differently than in banks. And it's important to understand this before investing your money.

## What is APR and Where Traders Encounter It

**APR in cryptocurrencies** — a metric that reflects how much you will actually earn or pay over a year. Unlike simple interest, APR accounts for all hidden costs: fees, charges, insurance, and more.

Cryptocurrency platforms use APR in three main scenarios:

**Collateralized Loans.** You provide BTC or ETH as collateral and borrow USDT, USDC, or other stablecoins. The interest rate might look like 8–10% APR annually, but it includes liquidation fees, management fees, and payments if the collateral drops in value.

**Staking.** Lock tokens and receive rewards. If a platform promises 15% APR on DOT — theoretically, every 100 DOT will bring you 15 DOT profit over a year. In practice, there are often fees: 2–3% taken by the platform, network fees, and the final income is less than promised.

**DeFi and Farming.** Here, APR can look crazy — 100%, 200%, even 1000%. It’s a nice figure on paper, but it doesn’t account for token volatility, temporary dips in value, or pool liquidity.

## APR in Crypto Is Not the Same as in a Bank

A bank says: 10% APR — and that’s almost guaranteed to be 10% at the end of the year. A crypto platform says: 10% APR — but this may be under ideal conditions. In reality:

- Tokens can drop by 20–30%, making your actual return negative.
- Withdrawal fees (0.5–2%) reduce your profit.
- Network fees in DeFi can be very high during network congestion.
- Rates are often variable, not fixed, and can drop at any moment.

Therefore, when you see **APR in cryptocurrencies** — it’s more like a potential than a promise.

## APR vs APY: What’s the Difference

Both metrics are often encountered in crypto:

- **APR** — simple annual yield without considering reinvestment of profits.
- **APY** — effective yield accounting for compound interest (when you earn interest on interest).

Practical example: 10% APR with monthly reinvestment yields about 10.47% APY. The difference seems small at first glance, but over large sums and long periods, it matters.

## How to Read APR Correctly to Avoid Getting Tricked

**Ask for details.** If offered a loan, clarify: what fees are included in the APR? Are there penalties for early repayment? How does the rate change if the collateral drops in value?

**Compare on equal terms.** One platform might offer 12% APR with 1% fee, another 15% APR with 3% fee. The first might actually be more advantageous.

**Check the history in DeFi.** If the rate jumped from 5% to 50% in a week — that’s a red flag. It could mean low liquidity in the pool or platform instability.

**Don’t forget taxes.** In some countries, income from staking or DeFi is taxable, which can significantly reduce your actual profit.

## Why APR in Crypto Looks Higher Than in Banks

In traditional finance, 7–8% per year is considered good. In crypto, 15–20% on regular staking and hundreds of percent in DeFi are common. It’s not magic, but risk:

- New projects offer high rates to attract liquidity.
- DeFi protocols use high rewards to incentivize farming.
- The higher the APR, the higher the risk of losing part or all of your investment.

## The Main Takeaway

**APR in cryptocurrencies** — a tool to estimate potential returns, but not a guarantee. Always check what fees are hidden behind the attractive number, and remember: if a rate looks too good to be true, it probably is. Proper analysis of APR helps avoid hidden losses and make informed decisions in the crypto world.