APY and APR are popular abbreviations often used in finances. They are similar but aren’t interchangeable.

For example, Tonstakers displays rewards as APY instead of APR — there’s a reason for that. We’ll explore both terms, explain how APY is calculated in TON staking, and explain why Tonstakers APY is so high.

What’s the Difference Between APR and APY

APR means Annual Percentage Rate and represents the lending and borrowing rates. When you lend tokens at 10% APR, the borrower will return the principal plus 10% interest.

APY means Annual Percentage Yield and represents the total amount the investor will earn if he realizes the profits a few times a year and reinvests them immediately. This is how the staking works: validators receive their rewards and add them to their stake to earn even more in the next cycle.

So, the key difference between APY and APR lies in compounding. APR represents a flat yield rate when accrued interest isn’t reinvested. APY represents the compounded interest. That’s why Tonstakers uses APY: it constantly compounds interest to bring users maximum yields.

Why Reinvesting and Compounding Are Crucial

In the long term, 4% APR means you will earn 4% annually. By investing $1000 at 4% APR you’ll get $1200 in 5 years.

At the same time, investing $1000 at 4% APY means that you will earn more and more every year, resulting in $1216 in 5 years. It doesn’t look like a big difference, isn’t it?

Remember that episode in Futurama where Fry checked his 1000-year-old banking account and found that his $0.97 turned into $4.3 billion? He got his “money” at 2.25% APY and the bank compounded them 1000 times, and that’s where billions came from. This is APY’s feature: the more you reinvest, the faster the profits rise.

Two Valuable Points About APY in Crypto

Please take into account, that the APY in staking and most crypto-related activities can’t be 100% accurate:

APY is calculated for an income in cryptocurrencies or tokens. If you invest 1000 tokens at 100% APY, you’ll get 1000 more tokens in a year. But their price might fall through this period, and in dollar equivalent, your returns will be smaller than 100%.
APY of staking, farming, and other crypto activities constantly changes because of different factors. One project can offer 20% APY today and 3% tomorrow — that’s how our market goes.

Take into account, that the APY offered by crypto projects represents the current yield calculated out of the current metrics, usually without looking at the token price.

How TON Staking APY is Calculated

TON validators receive their rewards for creating new blocks and validating transactions. TON creates new Toncoins to reward validators through the inflation mechanism, which is set at 0.3–0.6% of the total Toncoin supply.

Considering only validators generate new TON, we can calculate the staking APY. To do so we only need to know how many Toncoins were created in 24 hours and the total Toncoins staked.

The calculations are following:

According to TON Stat data, on April 4th validators minted 47,789 TON with a total stake of 465,211,323 TON, which gives us 0.010272535% daily interest.

2. The validators can receive and reinvest rewards every 18 hours. If so, through the year they compound their profits ~486 times.

Throughout the year, validators will earn (1 + 0.00010272535)⁴⁸⁶ or 5.11% APY, but this is a general number for all validators participating in TON staking.

Meanwhile, the staking APY isn’t a constant number. It often changes along with network-related factors: inflation, number of blocks created, number of active validators, the total amount of Tocnoin staked, etc.

Also, a particular validator’s APY might be lower than the network average if he missed some blocks and rewards or tried to trick the network and got slashed.

TON liquid staking platforms’ APY also isn’t equal to the average TON staking APY. E.g. at the moment of calculations, Tonstakers APY was 4.46%, while Ton Nominators was 3.13%.

Why Tonstakers APY is Higher

Tonstakers APY is calculated in the same way as the total network APY: we take the amount of TON received by Tonstakers in the last validation cycle, divide it by the total amount of TON staked with Tonstakers, add 1, then exponent it to 486 to account compounding.

While all TON liquid staking platforms operate by the same principle, Tonstakers provides bigger APY thanks to the operations and fee optimizations.

Conclusions

APR is a flat yield. It doesn’t account for any reinvestments.

APY is a yield achieved with compounding. $0.97 at 2.25% APY will become $4.3 billion after 1000 cycles of compounding.

TON staking APY depends on the network’s metrics. On average, validators earn ~4% APY if they care to reinvest the rewards.

Tonstakers achieves one of the highest APY in the ecosystem thanks to automatically compounding all rewards, and optimizing operation costs and fees. We are doing our best to max out TON staking and maximize returns for our users.