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APY vs APR - compounding rewards
The majority of our vaults work on an compounding strategy. This sees vault rewards harvested and re-invested into the underlying asset. In the WEX-BNB example used previously, we staked WEX-BNB wLP's from WaultSwap. When these LP tokens are staked on WaultSwap they earn $WEX rewards. Our Vaults take this $WEX reward, sell it and use the earnings to purchase more BNB and add this to the total number of WEX-BNB wLP's from WaultSwap in the vault.
This compounding happens as the Vault contract is harvested, and more details of how this is called will be outlined further in the documentation. The important thing to note is that with the compounding of rewards into the underlying asset (the WEX-BNB wLP's from WaultSwap) we can see exponential growth. This is reflected as Annual Percentage Yield or APY (more details about APY can be found here).
APR or Annual Percentage Rate on the other hand is the return you would expect, if the compounding outlined above didn't occur. This is linear growth and more details can be found here.
The vaults of Eleven Finance utilise the power of compounding returns as one of our strategies to provide optimal yields to the users of our platform.
Last modified 6mo ago
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