In the rapidly changing world of digital assets, understanding yield metrics is crucial for optimizing investment strategies. APY (Annual Percentage Yield) as a core indicator of passive income has become essential knowledge for investors looking to profit in the cryptocurrency market. This article will delve into the practical applications of APY in cryptocurrencies, its calculation logic, differences from other yield metrics, and how to leverage it to optimize returns in different market environments.
Core Definition and Role of APY
Annual Percentage Yield (APY) is a way to measure the actual return on an investment over one year, with the unique feature of fully accounting for compound interest effects. Unlike simple nominal interest rates, APY reinvests the interest generated in each interest period back into the principal, then continues to accrue interest, resulting in the "interest on interest" effect.
This mechanism is especially advantageous for long-term investors. To illustrate with the simplest case, suppose you invest in