Apr 24•2 min read
Yearn Finance Comic - Part 3
What is the difference between APR, APY, and ROI? How does that work in Yearn Finance?
Let’s explore.
https://twitter.com/xuanling11/status/1517976574619922432
Table of Content
APR vs. APY
ROI
APR vs. APY vs. ROI
In Conclusion
APR vs. APY
https://twitter.com/xuanling11/status/1511508584680472576
APR is a profit associated with costs. It is a lending term that works for lenders and against borrowers. Higher APR is bad because it is risky and highly costly.
APY is a profit factor in the compound interest returns. It is also a lending term that works for lenders to predict their returns associated with risks. The higher the yield, the riskier the loan will be.
Both factors are not set in stone, which means they fluctuate based on the market conditions. 20% of APR or APY does not guarantee such returns eventually.
You can check my previous articles about this topic here.
ROI
Image credit: https://docs.yearn.finance/getting-started/guides/how-to-understand-yvault-roi#roi
ROI or Return on Investment is a ratio between the net profit and to cost of investment. ROI reflects the efficiency of the investment. It is a projection factor that evaluates products using their past performance.
Depending on the length of your investment and strategies, the ROI may vary.
APR vs. APY vs. ROI
Image credit: https://yearn.finance/#/vault/0xd88dBBA3f9c4391Ee46f5FF548f289054db6E51C
APR and APY can only estimate the potential returns. They do not give you a full picture of how you yield your investment. However, ROI gives useful information about the performance of your investment. To do so, you may calculate by yourself here. Luckily, Yearn Finance did it automatically on their platform.
In Conclusion
APR and APY can only provide estimated returns but ROI gives more concrete information about how your investment performed.
Photo by Christopher Carson on Unsplash
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Resource
https://medium.com/iearn/how-yearn-calculates-estimated-returns-apy-b4fd5b687bf9
https://docs.yearn.finance/getting-started/guides/how-to-understand-yvault-roi#roi
https://defirate.com/eth/?amount=1000&term=365&rate_type=lend
