APY and APR are commonly used terms in finance, but they are not interchangeable. For example, Tonstakers displays rewards as APY instead of APR, and there’s a good reason for that. Let’s explore these terms, see how APY is calculated in TON staking, and understand why Tonstakers' APY is so competitive.
What’s the Difference Between APR and APY
APR (Annual Percentage Rate) represents a flat annual interest rate, typically used for lending and borrowing. For instance, lending tokens at 10% APR means the borrower will repay the principal plus 10% interest over a year.
APY (Annual Percentage Yield) accounts for compounding, showing the total return if profits are reinvested multiple times within a year.
In staking, rewards are reinvested, meaning interest compounds over time. This is why Tonstakers displays APY—it reflects the compounding effect that maximizes user returns.
The key difference is compounding: APR assumes no reinvestment, while APY includes reinvested earnings.
Why Reinvesting and Compounding Matter
In the long term, compounding can significantly boost returns. For example:
- Investing $1,000 at 4% APR yields $1,200 after five years.
- The same $1,000 at 4% APY grows to $1,216 over five years due to compounding.
It may seem like a minor difference, but over extended periods, compounding produces exponential growth.
A fun example is the Futurama episode where Fry discovers that $0.97 in his 1,000-year-old bank account grew to $4.3 billion at 2.25% APY due to compounding. This highlights how reinvestment accelerates growth over time.
Two Key Points About APY in Crypto
APY is calculated in tokens, not dollars: If you stake 1,000 tokens at 100% APY, you’ll earn another 1,000 tokens in a year. However, if the token's price drops, your dollar-denominated returns may be lower.
APY isn’t fixed in crypto: Staking and farming yields can fluctuate based on various factors like market conditions, token price, and liquidity. A project offering 20% APY today may offer just 3% tomorrow. Crypto APY reflects current yields based on existing metrics, often without considering price volatility.
How TON Staking APY is Calculated
TON validators earn rewards by creating new blocks and validating transactions. These rewards come from an inflation mechanism that generates 0.3–0.6% of the total TON supply annually.
To calculate staking APY, determine how many Toncoins were minted in 24 hours and the total amount staked.
On April 4, validators minted 47,789 TON with a total stake of 465,211,323 TON, yielding 0.010272535% daily interest.
Validators can reinvest rewards every 18 hours, compounding profits approximately 486 times per year.
Using the formula for compounding, the network-wide APY is calculated as:
(1+0.00010272535)486=5.11(1 + 0.00010272535)^{486} = 5.11%
This is the average APY across all validators. However, individual validator APY may vary based on performance (e.g., missed blocks or penalties).
Why Tonstakers APY is Higher
Tonstakers calculates its APY similarly to the network-wide APY: by taking the rewards earned in the last cycle, dividing them by the total staked amount, adding 1, and compounding 486 times annually.
Tonstakers’ higher APY is due to operational and fee optimizations that maximize returns for users. While other liquid staking platforms like Ton Nominators offer competitive yields (e.g., 3.13% at the time of calculation), Tonstakers achieves one of the highest APYs in the ecosystem.
Conclusions
APR: Flat interest rate without reinvestment.
APY: Compounded interest with reinvestments. For example, $0.97 at 2.25% APY grows into $4.3 billion over 1,000 cycles.
TON staking APY: Averaging ~4–5% for diligent validators, it depends on factors like inflation, total staked supply, and validator performance.
Tonstakers stands out by optimizing operations and compounding all rewards automatically, delivering some of the highest APYs in the ecosystem. Our focus is on maximizing staking efficiency and providing users with the best possible returns.