Annual return in crypto: how APR in staking works for you

When you hold tokens in staking or lend them on a DeFi platform, you see figures like 15% APR or 8% per year. But what does this really mean, and how is it calculated? Let’s figure it out, because this number can significantly differ from what you actually receive.

What’s Behind the APR Abbreviation

APR (Annual Percentage Rate) — this is not just a “nice number on the platform.” It’s the annual interest rate that shows the real cost of your income or expenses. The key word here is — real.

In traditional banks, APR includes all fees and charges. In cryptocurrencies, the situation is similar but has its nuances. APR accounts for direct costs but often does not consider token volatility, network fees, and other hidden factors.

APR in staking: how it works in practice

Suppose you staked 100 DOT at 15% APR. This theoretically means you’d earn 15 DOT in a year. But that’s if everything remains unchanged.

In practice:

• You lock your tokens on the platform
• Validators process blocks, and you earn rewards
• These rewards are calculated as an annual percentage — 15% APR

But there’s a catch: if the token’s price drops by 20%, your actual dollar income becomes negative, despite the 15% APR.

Crypto loans and collateralized lending rates

APR in crypto lending works the opposite way. You borrow USDT against BTC collateral and pay 8% APR annually. This means:

• On a loan of 1000 USDT, you’ll pay 80 USDT in fees per year
• Plus, there may be liquidation fees if your collateral’s price drops

Here, APR reflects the real cost of the loan with all fees — closer to a traditional banking definition.

APR vs APY: why are they different in DeFi

Here’s where confusion begins:

Most platforms show APR, but refer to it as APY. This is a manipulation that makes the earnings look more attractive.

How is APR calculated

Basic formula:

APR = (((Total payouts – Principal)) / Principal) × (365 / days) × 100%

But in reality, it’s simpler:

1. The platform divides the annual income by your principal
2. Deducts fees (if any)
3. The resulting number is your APR

In practice, use platform calculators, because doing it manually is complicated if there are different fees and periods.

Hidden factors that APR doesn’t show

It’s important to understand: APR is not a guarantee.

In DeFi, you often see 100%+ APR on new platforms. But this may not account for:

• Token volatility — the price can drop 50% over a year
• Network fees (gas) — especially on Ethereum
• Liquidation risk — if your collateral drops in value, the platform will sell it
• Dying projects — the platform may shut down in a month

How to choose offers wisely

When looking at APR in staking or crypto loans:

1. Compare APR, not just “interest” — make sure fees are included
2. Check if the APR is fixed or variable — the rate can change tomorrow
3. Consider withdrawal fees — sometimes you pay to unstake
4. Look at tokenomics — if a new token is distributed to everyone, its price may soon fall despite a high APR
5. Assess platform risk — “too good to be true” often means “too high risk”

Summary

APR in staking and crypto loans is an important but incomplete indicator of your actual earnings or expenses. It shows how much you’ll earn or pay in annual percentage but doesn’t account for risks and volatility.

Use APR as a starting point for comparison, but dig deeper: study platform fees, liquidation risks, and the token’s prospects. Only then can you make an informed decision, whether it’s staking Ethereum or borrowing USDT against Bitcoin collateral.